Common European Sales Law


Common European Sales Law
No. 2 – September 25, 2014
Made in Germany
In this issue
Industry 4.0 – Cross-border restructuring – Common European Sales Law – Setting up a
­compliance management system – New challenges in cloud computing – Mezzanine financing
2 – Editorial/content – BLM – No. 2 – September 25, 2014
Professor Dr.
Thomas Wegerich,
Business Law Magazine
[email protected]
Business Law Magazine:
aiming for cruising altitude
Dear Readers,
It was with great relief (and also pleasure) that the
Business Law Magazine (BLM) team and I observed
how well the BLM launch in June 2014 was received
within our different markets. The positive feedback
from so many of our readers encourages us to keep
working toward our most important goal, which is
nothing less than to establish this online magazine
as a first-class choice whenever German law issues
arise in an international context.
We are also proud of the fact that in just three
months we have gained additional partners within
the worldwide network of the German Chambers
of Commerce (AHKs). We are delighted to welcome
the AHKs in Greater China (Hong Kong, Shanghai,
Beijing, Guangzhou and Taipei), the Netherlands,
Poland, South Africa and Saudi Arabia on board!
The arrival of our new partners brings the international reach of BLM to 13 countries, and we hope to
expand our global footprint moving forward. This,
of course, will only be possible if we continue to
publish articles relevant to your daily practice.
I would like to invite you to find out whether we
have managed to do so in this current issue.
Best regards,
Thomas Wegerich
3 _ An opportunity for German
companies: increasing importance of
product quality, food safety and
healthcare in Asia
Corporate law & finance
14 _ Quo vadis capital maintenance?
Courts set aside limitation language
for upstream guarantees in
European law
4 _ On the right track
The Common European Sales Law:
the latest milestone toward adoption
18 _ Here we go again
Mezzanine financing makes a
By Wolfgang Ehmann,
AHK Greater China, Hong Kong
By Professor Dr. Dirk Staudenmayer
and Dr. Claudia Moser,
European Commission DirectorateGeneral for Justice
Mergers & acquisitions
7_ Economic liberalism:
Has it had its day?
An update on increased government
intervention in European M&A deals
By Dr. Regina Engelstädter,
Ronan O’Sullivan and
Dr. Jan Gernoth,
Paul Hastings (Europe) LLP
Insolvency & restructuring
10_ A bigger slice of the pie
Post-merger integration: taxefficient cross-border restructuring
via a German limited partnership
By Andrea Vitale and
Svenja Schmitt,
PwC Legal
By Dr. Birgit Friedl and
Dr. Marcus Geiss,
Gibson, Dunn & Crutcher LLP
By Dr. Nina-Luisa Siedler,
DLA Piper
21 _ Tone from the top
Compliance responsibilities of
management bodies, directors and
officers of domestic and foreign
subsidiaries of German groups
By Dr. Robert Weber,
Dr. Michael Müller and Darryl Lew,
White & Case
Internet & law
26 _ Industry 4.0
Digital business, autonomous
systems and the legal challenges
By Dr. Markus Häuser,
CMS Hasche Sigle
30 _ New challenges ahead
Cloud computing: contracting and
compliance issues for in-house
By Dr. Severin Löffler and
Shahab Ahmed,
Microsoft Corporation
Public procurement & Cartel law
33 _ The Intel judgment—old wine in
new bottles?
EU antitrust law, rebate schemes
and the “as efficient competitor”
By Dr. Joachim Schütze and
Dr. Dimitri Slobodenjuk,
Clifford Chance
Legal market
38 _ The Fast and the Furious
Dynamics of value-add counseling
and the corporate legal function
By Dr. Klaus-Peter Weber,
Goodyear Dunlop
41_ Advisory Board
42_ Strategic partners
43_ Cooperation partners
44_ Imprint
3 – Focus – BLM – No. 2 – September 25, 2014
Wolfgang Ehmann,
Executive Director,
AHK Greater China, Hong Kong
[email protected]
An opportunity for German companies: increasing importance of product quality, food safety and healthcare in Asia
By Wolfgang Ehmann
he impact of Asia’s rapid development on
the global economy, driven primarily by
China, is becoming more and more significant,
both in absolute and relative terms. The newly
found wealth in the region is fueling demand for
Western brands, consumer goods and services.
This is creating new opportunities for foreign companies to build and expand their business in Asia.
Economic development is also occurring hand
in hand with demographic changes, opening up
business opportunities in the region’s healthcare
the world, with 1.11 children born per woman of
locally produced food. Although the market share
citizens has become an economic factor in Asia.
with the West, the demand for organic groceries
childbearing age. The increasing share of senior
The rise of emerging countries is accompanied
by a sociological phenomenon: the develop-
ment of a middle class. This is commonly linked
to the state of development of an economy and
is directly associated with terms like affluence,
urbanization and modernity. The main factors
determining the middle class are household
sector. With highly developed infrastructure and a
income and ownership of residential property.
regional business hubs like Hong Kong or Singa-
of the population in mainland China belongs to
and services innovations and set trends that will
40 percent by 2020. Such growth rates promise
of organic food products in Asia is small compared
has increased by 15 percent to 20 percent annually
in the last decade. The consumption of imported
organic food such as infant nutrition, cereals
and dairy products has been on the rise as well.
Growing consumer affluence and food-quality
of such trade shows as Asia Fruit Logistica in Hong
There is no denying that Asia already is and will
be even more so in the future an important economic region among the world’s economies. With
widely diverging states of economic development
and each country having its own political, ethnic,
social and religious fabric, however, the region is
anything but homogenous. In tackling these markets, one has to be aware of the fact that no single strategy is applicable in two countries. Careful
consideration of each target market is essential.
In this respect, the AHK organization—with its
global presence and offices in all major capitals
of the world—is extremely well positioned to
assist aspiring exporters and investors from
Germany, especially small and medium-sized
enterprises (SMEs). In Asia, the AHK offices work
together in the ASEAN and Greater China regions
where they have formed regional alliances.
awareness have contributed to the recent success
Kong, where naturally grown fruit and vegetables
today command higher prices than in their tradi-
liberal market economy in which East meets West,
According to OECD statistics, currently 10 percent
pore are prime locations to test the latest product
the middle class. This share is expected to rise to
At the same time, new sectors in healthcare are
eventually permeate the entire region.
sizeable business opportunities for Western and
tion. Medical insurance is also becoming more im-
Driving factors
repute among Asian consumers.
The history of economic development in Western
countries has shown the impact an economy’s
especially German brands, which enjoy high
Business opportunities
higher level of affluence has on demograph-
These middle-class consumers are increasingly
between the wealth of a nation and the average
readily available at any time. The preferences of
of better career opportunities, and life expec-
supply side of the market, particularly in such
no different in this respect. In China, this effect
education, nutrition and healthcare. Take the
ics. Empirically, there is a positive correlation
demanding quality products and services to be
age of its society. Birth rates are low as a result
this sector of society have a direct impact on the
tancy is high due to better medical care. Asia is
diverse sectors as culture and entertainment,
is intensified by the one-child policy. As of 2013,
food-retail market for example: Recurring food
Hong Kong had one of the lowest fertility rates in
scandals have severely eroded consumers’ trust in
heterogeneous when comparing urban and rural
areas. On the other hand, Hong Kong has a highly
developed healthcare system in which eligible citizens receive subsidized public healthcare services
without insurance. Public and private hospitals
alike are of high service quality, both within their
peer group and by international standards.
tional markets in North America and Europe.
emerging to serve the needs of the aging popula-
portant since traditional family roles in which the
young take care of the elderly are on the decline.
This is one reason why the pension insurance in
mainland China aims to cover the entire population by 2015. The scheme was revised in 2005
and requires both employees and employers to
contribute to the fund. Adequate insurance cover-
age is vital to the success of China’s economic shift
away from investment-driven growth to increased
domestic consumption. Today, private house-
holds generally save well over 30 percent of their
income. In terms of healthcare, the coverage of
public versus private hospitals in China is still very
4 – European law – BLM – No. 2 – September 25, 2014
On the right track
The Common European Sales Law: the latest milestone toward adoption
By Professor Dr. Dirk Staudenmayer and Dr. Claudia Moser
n 2011 the European Commission submitted its proposal for a
Regulation of the European Parliament and of the Council on a Common
European Sales Law (COM (2011) 635
final). An initiative of crucial importance
for consumers and businesses in the
internal market, it aims to facilitate
cross-border trade. In Europe, crossborder trade is far from smooth: Up to
90 percent of traders face hurdles to
exporting their products to other EU
member states. One of these hurdles
is the divergence of national contract
laws. A trader selling a product to a
consumer in another EU country has
to respect the mandatory rules of the
consumer’s country of residence. This
applies even if the parties have chosen
another law as the law applicable to
the contract (Art. 6 (2) of the Regulation
(EC) 593/2008 on the law applicable to
contractual obligations (Rome I)). Traders
must therefore solicit advice about the
relevant foreign laws and adapt their
terms and conditions accordingly. This
results in estimated costs of €10,000 per
company and export member state on
Shop till you drop:
Under the proposed Common European
Sales Law, consumers will have more choice
at more competitive prices.
© Thinkstock/Getty Images
average, a heavy burden in particular
for small and medium-sized enterprises
(SMEs). On the other hand, consumers
do not make cross-border purchases
because they are uncertain about their
rights. Even in cases in which consumers
attempt to purchase a product from another EU country, they might encounter
traders unwilling to sell their products
abroad due to the sheer cost of doing so.
Advantages of the new sales law
Under the Common European Sales Law,
companies that choose the Common
European Sales Law as the applicable
law can sell their products on the basis
of one single contract law and one single
IT platform across all EU countries. This
enables them to save transaction costs
and makes it easier for them to offer
their products in other countries. Correspondingly, consumers will have more
choice at more competitive prices.
The Common European Sales Law creates a comprehensive set of sales-law
rules that is identical in all EU member
states and available in all official languages. It applies as a second regime in
addition to national sales laws and –>
5 – European law – BLM – No. 2 – September 25, 2014
does not replace them. Most importantly, this new regime is optional.
The contractual parties may agree on
it, but are not obliged to do so. They
will only choose to apply it if it holds
economic and legal advantages for
them. Thus, the Common European
Sales Law leads to a win-win situation for both contractual parties.
The Common European Sales Law
can be used for the cross-border sale
of movable tangible goods and for
the supply of digital content as well
as contracts for related services, such
as installation or repair of the goods
purchased. It contains all of the elements that are essential during the
life cycle of a cross-border sales contract, such as rules on the conclusion
of a contract, precontractual information requirements, unfair terms control and the rights and obligations
of the buyer and seller. A contract
can thus be largely based on the
Common European Sales Law alone.
Only a few areas of contract law are
not included in the proposal, either
because (a) they are not regarded as
being problematic in cross-border
contracts, such as rules on representation or set-off, or (b) they are
regarded as being particularly sensitive within the national legal system,
such as the protection of minors or
the moral standards of contracts.
Overall aim: consumer confidence
common ground
In order to create consumer confidence
and to give consumers the certainty
that they are not worse off compared
with the protection offered by their
national laws, the level of consumer
protection offered by the Common
European Sales Law is comparatively
high. A recent behavioral economics
study launched by the Commission
has shown that consumers are not
afraid of optional systems. Agreeing to
the application of an optional instrument does not increase the likelihood
of canceling a purchase. The optional
instrument does not raise consumers’
concerns about their rights and how to
claim them in a cross-border purchase.
Next steps in the legislative process
The Common European Sales Law is
now being negotiated in the Council and the European Parliament.
Whereas negotiations in the Council
are progressing rather slowly, the
European Parliament has already
adopted its position with a two-thirds
majority after the first reading. It
welcomes the proposal and stresses –>
International post-merger integration
It’s not always easy to get many different parts to function as a whole, especially where
the task involves integrating companies at the international level. The peculiarities
of different legal systems and jurisdictions must be addressed. Fortunately, you can
count on our PMI experts. We provide centralised legal planning and execution of the
integration process from start to finish. When it comes to major projects with a tight
timeframe, we make sure the deal pays off. Let’s talk about your plans!
Dr. Dirk Stiller
Head of Corporate/M&A in Germany and of PwC Legal’s global
M&A practice with approximately 650 lawyers in 80 countries.
Tel.: +49 69 9585-6279, E-Mail: [email protected]
© 2014 PricewaterhouseCoopers Legal Aktiengesellschaft Rechtsanwaltsgesellschaft. All rights reserved.
In this document, “PwC Legal” refers to PricewaterhouseCoopers Legal Aktiengesellschaft Rechtsanwaltsgesellschaft, which is part
of the network of PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent
legal entity.
6 – European law – BLM – No. 2 – September 25, 2014
its potential benefits for consumers and
businesses in the internal market. It also
supports the basic policy choices of the
Commission, especially with regard to
the optional nature of the proposal.
The European Parliament also made a
number of amendments to the proposal,
some of which are purely technical in
nature while others contain important
political decisions. The main amendments relate to the following aspects:
_ The Parliament wants to limit the scope
of the proposal to distance contracts.
The term “distance contracts” covers
in particular e-commerce. This represents an attempt on the part of the
Parliament to take into account the
potential of this rapidly growing sector,
particularly in cross-border contracts.
_ The Parliament wants to extend the
scope of the proposal to all transactions between businesses. Whereas
the Commission’s proposal required
that at least one company involved in
the transaction qualify as an SME, the
Parliament would allow two traders,
regardless of their size, to choose to
apply the Common European Sales Law.
_ In order to address the growing
importance of the digital world, the
Parliament made a number of amendments in this area as well. These relate
in particular to cases where digital
content is not paid for with money,
but, for example, with personal data.
It wants to expand buyer protection in
these cases, giving the buyer more or
less the full range of remedies available. Furthermore, it proposes specific
provisions for restitution in these cases.
_ Following industry criticism of the high
level of consumer protection, the Parliament wants to achieve a better balance between the interests of business
and consumers. Its amendments, for
instance, restrict consumers’ remedies
in several areas. For example, the Parliament would only allow the consumer
to terminate the contract within two
months after having noticed the defect.
Thereafter, the consumer would only
have such less extensive rights as repair
or replacement and only be allowed to
terminate the contract if those remedies are not possible or have become
unlawful. Another example is that the
Parliament wants to shorten the absolute period of limitation, which begins
on the date the seller must provide the
product, from 10 years to six years. Apart
from the long limitation period, there
is a short limitation period of two years
that begins at the time of actual or
expected awareness of the facts as a result of which the right can be exercised.
_ On the other hand, the Parliament’s
amendments increase consumer
protection in the area of control of
unfair terms. The scope of control is
extended to the main subject of the
contract and to individually negotiated
terms. Various clauses on the list with
terms that normally are supposed to
be unfair but that could be considered
fair in specific cases in the Commission
proposal, were moved to the list with
terms that are always considered unfair.
Additionally, the Parliament added a
number of clauses to the former list.
Conclusion and outlook
Whether the Council adopts the amendments suggested by the Parliament
remains to be seen. In any case, the
Commission will continue to follow-up
on the negotiations in a constructive
manner and work toward an acceptable compromise that would help
consumers and traders to fully explore
the potential of the Single Market.
It is important to note, however, that the
adoption of the European Parliament
position has marked another milestone in
the legislative process toward the adop-
tion of the Common European Sales Law.
The Common European Sales Law offers
a voluntary, concrete solution to concrete problems faced by companies and
consumers. Choice is the key word here.
Adoption of the law in the near future
would offer economic operators more
choices. It will offer those who apply it
a win-win situation that both sides can
take advantage of if they choose to. <–
Professor Dr. Dirk Staudenmayer,
Head of the Contract Law Unit,
­European Commission DirectorateGeneral for Justice, Brussels
[email protected]
Dr. Claudia Moser,
Seconded National Expert, Contract
Law Unit, European Commission
Directorate-General for Justice,
[email protected]
Editor’s note: The views expressed by the
authors of this article do not in any way
represent the position of the European
7 – Mergers & acquisitions – BLM – No. 2 – September 25, 2014
Economic liberalism: Has it had its day?
An update on increased government intervention in European M&A deals
By Dr. Regina Engelstädter, Ronan O’Sullivan and Dr. Jan Gernoth
urope has long been described as a
liberal market. Recently, however, a
number of high-profile mergers and
acquisitions involving foreign investors have
been called into question by politicians, and
the involvement of politics in the economic
arena seems to have increased. Examples
include the legislative reactions of the
French government toward the proposed
takeover of Alstom S.A., which culminated
in the passing of the highly protectionist
Foreign Investment (Preliminary Approval)
Order , dubbed le Décret Alstom by the
French media, in May 2014. Cross-border
M&A deals have seen increased scrutiny,
and politicians and other stakeholders have
exerted more influence on the outcome of
such deals, adding another layer of complexity to their planning and execution,
particularly at the higher end of the market.
And not just non-European purchasers
have had to face this additional scrutiny.
Increased economic patriotism
drives FDI policies
The United Nations Conference on Trade
and Development has been monitoring the
Keeping up or taking out the steam?:
Government intervention in and public
scrunity of cross-border M&A deals in
Europe, such as GE’s takeover of French
engineering conglomerate Alstom
(pictured here is an Alstom steam
generator undergoing maintence), harbor
the potential to make or break such
© obs/ALSTOM Deutschland AG
global foreign direct investment (FDI) regulatory environment since the beginning
of the 21st century. The UN’s World Investment Report 2014 points to a pronounced
tightening of the FDI regulatory framework
over the last decade and a half. By and
large, though, FDI policies still remain fairly
liberal and open; national policy is very
much shaped by—and reacts to—domestic
trends and emotions, and regulation is used
by governments as a key tool for protecting
strategic national interests. In Germany, for
example, the Foreign Trade and Payments
Act (Außenwirtschaftsgesetz, or AWG) has
been amended several times in recent years
in response to public pressure. At the end of
2008, as the world found itself in the midst
of a financial and economic crisis, several
politicians in Germany saw a chance to
push for reforms to the AWG in order to
position themselves as “the guardians of
German companies” who would protect
the German economy from the growing
influence of sovereign wealth funds and
the “swarms of locusts” that many felt were
responsible for the economic crisis in the
first place. It was claimed that Germany
was “under attack” from foreign countries
“looking to buy up everything in sight.”
The 13th act amending the AWG introduced
provisions giving the German government the power to investigate and veto
individual foreign-backed takeovers –>
8 – Mergers & acquisitions – BLM – No. 2 – September 25, 2014
of German companies in the event
such a takeover was deemed to pose a
threat to “public order or the security
of the Federal Republic of Germany.”
Public opinion makes or breaks deals
As a country that has seen its fair share
of inward FDI in recent years, the UK has
actively pursued a deregulated agenda
since the Thatcher era. However, even
traditionally very liberal markets are not
immune from political opposition. In
2009, the hostile bid launched by the
U.S.-based company Kraft Foods, Inc. to
acquire the iconic Birmingham-based
chocolate producer Cadbury Plc generated a huge public outcry, complete
with fears of union rebellions, significant job losses and factory closures.
After five months of wrangling and
tense negotiations, including repeated
requests for the CEO of Kraft to appear
before a parliamentary select committee, the deal was finally concluded.
However, the political backlash had left
its mark. Following the acquisition, the
UK’s Panel on Takeovers and Mergers,
an independent body established in
1968 to issue and administer the City
Code on Takeovers and Mergers (the
Code) and to supervise and regulate
takeovers and other matters to which
the Code applies, undertook a review of
the Code in light of possible risks posed
to UK economic and public interests by
the acquisition of UK companies. The
review led to the amendment of the
Code that included provisions aimed at
strengthening the hand of the target
company, in particular, especially with
regard to the disclosure of a purchaser’s post-completion intentions and
enforceability of any precompletion
commitments. The UK government
also stated that it would “take a greater
interest in mergers and acquisitions”
in the future. This intention became
a reality in 2014 when, for instance,
the secretary of state for business
suggested the consideration of new
legislation imposing “tough financial
penalties” to prevent companies from
reneging on premerger promises.
The most recent examples clearly
demonstrate that investors cannot
rely on purely economic arguments
to realize their objectives. Public and
political opinion indeed has a direct
impact on the regulatory environment.
The impact of economic patriotism on M&A transactions
Despite this correlation, investors must
remember that the general tightening
of the FDI regulatory environment –>
9 – Mergers & acquisitions – BLM – No. 2 – September 25, 2014
does not necessarily equate to an overall
rejection of all types of FDI. Indeed, the
increased levels of regulation are merely
indicative of a more “nuanced approach,”
whereby governments use FDI policies
to pursue certain political objectives or
accommodate the concerns and pressures
of civil society. Much of the new regulation
in Europe has been a response to concerns
about investment from emerging economies, including Russia, the Middle East and
China. In fact, a recent study by Nathan
Jensen and René Lindstädt entitled
“Globalization with Whom: Context-Dependent Foreign Direct Investment Preferences” found that individuals also rely on
“non-economic contextual heuristics” to
determine the impact of foreign-backed
takeovers while looking in particular at
the investor’s country of origin. With such
reactionary investment policies driven by
public opinion, the European Union must
be careful to ensure that the different
responses of individual member states do
not lead to a so-called “regulatory race to
the bottom,” in which the interests of
one member state are threatened by the
actions of another. A prime example of
this would be a case in which an investor
who has been denied access to one country on the grounds of national security is
welcomed in another thanks to a more liberal FDI framework. With 27 different regulators, this is an almost logical certainty.
Recent political changes and business headlines give rise to the impression that prime acquisition targets in
certain jurisdictions are now out of
reach. Nevertheless, it would be naive
to assume that this is a new phenomenon. Politics has always played a role
in the takeover of large corporations.
Political influence on the acquisition
of other, non-blue chips remains limited. While there are, indeed, a number
of formalities to be observed in many
countries, such as notification of the
proposed takeover to the relevant regulatory authorities, the risk that a transaction will be blocked is very small. This
is particularly true in the case of takeovers involving EU and U.S. corporations.
Moreover, recent transactions involving
Chinese investors in Europe and the
United States (for example, the acquisition of a 25 percent stake in the German
forklift and industrial truck manufacturer
KION Group AG by Weichai Power Co.,
Ltd, a subsidiary of the Chinese stateowned industrial giant Shandong Heavy
Industry Group Co., Ltd, or the $4.7 billion
takeover of U.S. pork producer Smithfield
Foods, Inc. by its Chinese competitor
Shuanghui Group, now WH Group) have
shown that politicians and regulators
adopt a fairly liberal, nonprotectionist approach to such M&A activities.
Conclusion and outlook
Inevitably, it will be necessary to consider the potential political impact of
any cross-border transaction—especially
one within a strategically important
sector. Engaging in appropriate PR and
lobbying activities early on can play a
crucial role in ensuring that a deal goes
ahead successfully. Nevertheless, Europe
is still seen as a liberal market in which
political interference is relatively limited
and often viewed as more of a distraction than a deal-breaker. In addition, it
is expected that the impact on small
and midsize M&A transactions will not
increase. Therefore, investors should be
careful to remember that the shareholders are the real decision-makers. <–
Dr. Regina Engelstädter,
Partner, Corporate Department,
Paul Hastings (Europe) LLP
[email protected]
Ronan O’Sullivan,
Partner, Corporate Department,
Paul Hastings (Europe) LLP
[email protected]
Dr. Jan Gernoth,
Partner, Corporate Department,
Paul Hastings (Europe) LLP
[email protected]
10 – Insolvency & restructuring – BLM – No. 2 – September 25, 2014
A bigger slice of the pie
Post-merger integration: tax-efficient cross-border restructuring via a German limited partnership
By Andrea Vitale and Svenja Schmitt
hen integrating a target
into an existing group or
restructuring and reorganizing a group of companies after an
acquisition or merger, there are many
different aspects to be considered before
choosing a corporate structure. Taxes
are one of the key factors and often the
crucial argument for a certain structure.
companies (erweiterte Kürzung für
Immobilienunternehmen). However,
this exemption has very narrow pre­
requisites that in practice often
prevent the application of this exemption. Furthermore, the legislation with
regard to this exemption has become
tighter in recent years. It is therefore
worth thinking about alternatives.
Whenever real estate property located
in Germany is a noteworthy factor in
the group of companies, a cross-border
structure may be worth considering. This
is because German tax law provides for a
company’s income tax to consist of both
corporate income tax and trade-income
tax, and the latter can possibly be avoided
for a real estate company under certain
circumstances. As a consequence, the
return from German real estate could
be exempt from trade income tax.
One possible way to work around
trade income tax is the implementation of a cross-border structure using
a German limited partnership (a
so-called No-PE-KG). Under German
law, the seat of the limited partnership is automatically located at its
place of administration. This place of
administration constitutes a permanent establishment (PE), which is the
requirement for levying trade income
tax. Real estate property itself does
not constitute a permanent establishment. Thus, in order to avoid trade
income tax, only the place of management/administrative seat itself must
be located outside of Germany. –>
The most common way to avoid
trade tax on income from German
real estate is the so-called trade
tax exemption for pure real estate
For a bigger slice of the pie: Cross-border limited
partnership structures could lower a group of
companies trade-income tax burden.
© Rodolfo Fischer Lückert
11 – Insolvency & restructuring – BLM – No. 2 – September 25, 2014
The possibility to move the administrative seat of a German limited liability
company (which is considered the permanent establishment for tax purposes)
across the German border and to another
jurisdiction was laid down in section 4a
of the Limited Liability Companies Act
(Gesetz betreffend die Gesellschaften mit
beschränkter Haftung, or GmbHG) in
2008. However, no such legislation has
been introduced with regard to limited
partnerships. Consequently, the possibility of moving the administrative
seat of the German limited partnership to a destination outside of Germany has been disputed ever since.
From a European law point of view, part
of this dispute has been decided by the
case law of the European Court of Justice:
As far as the legal system of the state
in which a company was incorporated
allows for it to move to another jurisdiction, the freedom of establishment demands that the right to move the seat of
the company must not be restrained. The
state to which the company intends to
migrate must accept it (see the Überseering decision of the European Court of Justice dated Nov. 4, 2002 (C-167/01)). Since
the European Court of Justice does not interpret the freedom of establishment as
allowing any European company to move
its actual seat to a different jurisdiction
if its home jurisdiction does not already
provide for such possibility (see the Cartesio decision of the European Court of Justice dated Dec. 16, 2008 (C-210/06)), there
is a certain need for national legislation.
There is no law that explicitly
permits or prevents a ­German
limited partnership from
­moving its administrative seat
to another jurisdiction
However, a manageable amount of
precautions can enable the management to opt for such a structure without
taking major legal or financial risks.
Practical measures and precautions
First of all, a new administrative seat
must be basically selected according
to two aspects. First, from a tax point
of view, this new jurisdiction must not
tax income from foreign real estate
(for example, due to a double taxation treaty). Second, from a corporate
law point of view, it should apply the
legal principle that the laws of the
jurisdiction where a company was
incorporated remain relevant for its
legal survival. This is the case in the
Netherlands, in the United Kingdom,
in Ireland and Denmark, for example.
Registration in the commercial register
There is no requirement to inform the
commercial register about the change of a
limited partnership’s administrative seat.
Thus, it is questionable whether a starting
point for an investigation by the commercial
register or any other authority actually exists. If, however, the commercial register does
receive information on the change of the
administrative seat by way of an informal
notice or other circumstances, there is a
chance it might be of the opinion that the
limited partnership has entered the state of
liquidation by moving its administrative seat
to another jurisdiction. In order to be prepared for this, there are some consequences
to be observed and dealt with in advance
of moving so that any legal risks arising in
connection with the state of liquidation
of the company can be easily avoided:
_ Registration of the dissolution
of the limited partnership
If one were of the opinion that moving the administrative seat of a limited
partnership to a foreign jurisdiction leads
to its dissolution and liquidation, the
initial resolution regarding the change
of the administrative seat must consequently be understood as the decision to
dissolve the company. As such, it would
have to be registered with the commercial register. In the event that company
management does not comply with its
obligation to register this change with
the commercial register, it can be charged
with an up to €5,000 fine in accordance with Section 14 of the German
Commercial Code (Handelsgesetzbuch,
or HGB) and Section 388 of the German
law on procedure in family issues and
matters of voluntary jurisdiction (Gesetz
über das Verfahren in Familiensachen und
in den Angelegenheiten der freiwilligen
Gerichtsbarkeit, FamFG). Registration –>
12 – Insolvency & restructuring – BLM – No. 2 – September 25, 2014
may be done ex officio if the threat as
well as the determination of the fine
remains without consequence. However,
there is no financial risk in this as the
application can be filed after receipt of
the first fine notice, if any. As a consequence, the fine would not be due.
_ Labeling as a Liquidationsfirma (i.L.)
If, due to the commercial register’s
opinion as set out above, the company is registered as being in a state
of liquidation, Section 153 of the HGB
stating that a company in the state
of liquidation must labeled as such
applies. This is done by using the abbreviation “i.L.” when acting on behalf
of the company. However, this abbreviation is an immediate consequence of
the decision to dissolve the company
and therefore does not need to be
registered in the commercial register separately. In addition, it does not
form a part of the company name.
_ Time limit for liquidation
of a ­company
There is no time limit for the liquidation of the company.
_ Enforcement of deletion
from the register
The termination of a company must
be registered with the commercial
register. However, the company is only terminated when
liquidation procedures are finalized and the company no longer has
any assets. Only then are the directors
in charge of the liquidation obliged to
file for registration with the commercial register in accordance with Section 157 of the HGB. Based on Section
14 of the HGB, together with Section
388 of the FamFG, the commercial
register court may threaten and
charge a fine of up to €5,000 if notice
of the termination of a company is
not filed with the commercial register
despite an actual termination occurring. It may even delete a company
from the register ex officio in accordance with Section 393 of the FamFG if
the management fails to file for such
registration. Once the commercial
register court delivers a notice announcing the deletion ex officio, the
directors of the company can always
object to such deletion. Deletion must
be canceled as soon as there is doubt
about the existence of the company.
That means that as long as the com-
pany has assets, the commercial register does not have
the power to delete the company.
Consequences with regard to
the articles of association
_ D irectors in charge of liquidation
According to Section 146 of the HGB,
all partners of a limited partnership are jointly in charge of liquidation. When considering the use of a
structure that includes a change of
the administrative seat to a foreign
jurisdiction, not only is it favorable,
but it is even mandatory from a legal
and tax perspective to change this by
amending the articles of association.
They should state that only the general partner of the limited partnership is the liquidator, meaning that
this person is in charge of liquidation and the sole person authorized to represent the partnership in
liquidation procedures. It is mandatory to ensure that business actions
and decisions are not at risk to be
viewed as provisionally ineffective if
they were made by the general partner during that time period when
the administrative seat of the limited partnership was already located
in a foreign jurisdiction and thus
possibly in a state of liquidation.
_ C hange of purpose of the enterprise
The purpose of the enterprise as
set out in the articles of association
sets the frame for the authority of
the directors in charge of liquidation. When first entering the state
of liquidation, the purpose of the
enterprise is automatically changed
from general business operations to
the winding-up of the partnership
and its assets. In this context, a broad
interpretation is recognized. As a
general rule, any action is considered
as promoting the winding-up if it is
the goal of the transaction to achieve
the largest revenue possible for the
partners and to satisfy the company’s
creditors, that is, the directors are
allowed to conclude new lease agreements or acquire new real estate.
_ Continuation of the company
from the state of liquidation
It should be included in the articles
of association that even when in the
state of liquidation, it may be resolved
by the partners to abort liquidation –>
13 – Insolvency & restructuring – BLM – No. 2 – September 25, 2014
tion. Only the deletion of the company
from the commercial register will
result in the loss of the legal capacity.
_ Registration in the land register
Since the suggested structure is especially useful for limited partnerships
owning real estate property, it is of
great relevance that a company’s ability
to be registered in the land register
is not hindered by possible liquidation procedures. The company can
remain registered in the land register
as the owner of real estate and can
even be registered as the new owner
while in the state of liquidation.
and continue the partnership. This
provision enables the partners to
continue the partnership and move
the administrative seat back to Germany at any time, even in a situation
in which judicial proceedings are
pending with regard to the existence and state of the company.
Legal relations
_ Legal capacity
The limited partnership remains legally
capable even in the state of liquida-
_ Information on business letters
The requirement to indicate the
seat of a company on its business
letters according to Section 125a of
the HGB refers to the actual registered seat of a company as tied to
the company’s place of jurisdiction.
Since the essence of the suggested
structure is that the registered seat
remain in Germany while the administrative seat is moved to a foreign
jurisdiction, there is effectively no
change regarding the information that needs to be included in
business letters. Reference to the
administrative address is not mandatory but possible as an addition.
As long as there is no law that positively
allows for a German limited partnership to move its administrative seat to
another jurisdiction, there is a certain risk
that the limited partnership be considered under liquidation after executing
such a structure. However, the actual
legal and financial risk in connection
with this structure can be considered
minor as long as certain precautions
and preparatory measures are observed.
The most important measure is the
adaptation of the articles of association
of the company. This will ensure that
management remains capable of acting
for and on behalf of the limited partnership and avoidable uncertainties can be
worked around from the beginning. <–
Andrea Vitale,
Certified Tax Advisor (Germany),
Tax Partner, PwC,
[email protected]
Svenja Schmitt,
Senior Consultant, PwC Legal,
[email protected]
14 – Corporate law & finance – BLM – No. 2 – September 25, 2014
Closed for business, but not for paying
up: German courts have ruled that capital
maintenance provisions in upstream
guarantees do not apply to German limited
liability companies undergoing insolvency
© Thinkstock/Getty Images
Quo vadis capital maintenance?
Courts set aside limitation language for upstream guarantees in insolvency
By Dr. Birgit Friedl and Dr. Marcus Geiss
he Higher District Court of Frankfurt recently upheld a ruling
of the District Court of Darmstadt restricting the scope of protection
against capital impairment accorded
to German limited liability companies
(GmbHs): The courts argued that the
prohibition to repay registered share
capital to shareholders does not apply
in situations when insolvency proceedings have been opened over the assets
of a German limited liability company.
While the decision has not yet become fully effective as further remedies are still being pursued by the guarantor in the case,
the ruling will likely impact negotiations
between financing banks, borrowers and
the managing directors of German limited
liability companies in financing transactions in which German subsidiaries grant
upstream collateral for shareholder debt.
The principle of capital maintenance
In financing transactions it has long been
customary to restrict the enforcement
of upstream guarantees or collateral to
the detriment of financing banks. This is
due to one of the peculiarities of German
corporate law and its strong emphasis
on the principle of capital maintenance
(Kapitalerhaltung) pursuant to Sections
30 and 31 of the German Limited Liability Companies Act. These provisions
prohibit the repayment of registered –>
15 – Corporate law & finance – BLM – No. 2 – September 25, 2014
share capital by the respective GmbH
to its shareholders. As the amount of
registered share capital is recorded
in the publicly accessible commercial
register, creditors of German GmbHs
can in principle rely on the fact that
any GmbH will, based on a balance
sheet assessment, have assets to cover
such registered share capital figures
or, if assets have been used up in the
course of an entity’s business activities, they at least have not been repaid
or upstreamed to shareholders.
The German principle of
­capital maintenance can lead
to frictions, particularly in
the context of larger inter­
national financings
In order to sanction any undue repayment of share capital, the managing
directors of German corporations
face personal liability when they
effect or authorize the repayment
of registered share capital in contravention of these strict principles.
In particular in the context of larger international financings, these principles
can lead to frictions. The interests of
the financing banks and the borrowing
parent shareholders, on the one hand,
collide with the legal obligations of the
management of the German subsidiaries, on the other hand, who are regularly
being asked to support the parent loan
by providing upstream guarantees and/
or other forms of upstream securities
like global assignments, pledges or
real estate securities. The fact that the
subsidiary might be asked to repay or
secure the parent’s debt directly visà-vis the bank when the parent itself
defaults on its repayment obligations
is structurally the economic equivalent
of upstreaming funds to the parent,
who then repays the bank. This can
also result in a prohibited repayment
of the registered share capital. In order
to mitigate the risk of personal liability,
German management therefore has
to insist on certain contractual safeguards, so-called limitation language,
in German security agreements before
granting any form of upstream security.
In essence, this language provides that
any future enforcement of upstream
guarantees or security is restricted to
those assets that can be used without
infringing against due maintenance
of the registered share capital figure. In addition, such clauses often
include the specifics of how the free
assets available for enforcement –>
16 – Corporate law & finance – BLM – No. 2 – September 25, 2014
are calculated and which balance sheet
position can be disregarded, particularly
in cases in which the securing German
subsidiary directly benefits from the
loan granted to the parent. From the
bank’s perspective, such limitation
language may considerably reduce the
value of the guarantee or collateral.
The ruling
The District Court of Darmstadt (Land­
gericht Darmstadt, AZ 16 O 195/12) and,
on appeal, the Higher District Court of
Frankfurt (Oberlandesgericht Frankfurt am
Main, AZ 24 U 80/13) have recently become
the first German courts to deal with the
effects and effectiveness of such limitation
language clauses. In this particular case,
the borrower defaulted under the loan
and the bank in turn proceeded against
the subsidiary under an upstream guarantee that contained limitation language to
protect the registered share capital of the
guarantor. The specific question the courts
were faced with was whether such limitation language still applied and protected
the registered share capital against the
bank’s enforcement claims even after both
the borrowing parent and the guaranteeing subsidiary had fallen into insolvency.
When dealing with the effectiveness
of limitation language at the stage of
the guarantor’s insolvency, both courts
approached the issue by determining
the purpose of such limitation language
first. Rather than basing their analysis
predominantly on the interests of the
company’s creditors at large in preserving the registered share capital figure
as a liability fund for all creditors, the
courts held that the main purpose of
such limitation language is to protect
the managing director against the risk
of personal liability inherent in granting security for a debt of the parent and
shareholder. The courts then decided
that this protective purpose no longer
applies in insolvency proceedings because at this stage the managing directors have already been replaced by the
insolvency administrator. In other words,
the limitation language served its initial
purpose of protecting the managing
directors of the guarantor for as long as
they were in office. As soon as they are
replaced due to the initiation of insolvency, the courts concluded, the limitation language is no longer necessary to
protect them. It thus no longer applies
in insolvency. The bank’s claim for the
guaranteed sum is no longer limited to
free assets only but now covers all of the
debtor’s assets (including those previously required and blocked to cover the
sum of the registered share capital under a balance-sheet-based assessment).
This interpretation is reinforced by
the courts’ additional auxiliary argument that the registered share capital
is regularly used up in insolvency, anyway. Therefore, the protective layer for
creditors accorded by the principle of
capital maintenance no longer exists.
The court’s reasoning appears
to be deliberately abstract and
broad enough to cover any
­type of upstream collateral
This decision means that the scope of
the assets available to the bank for satisfaction of its claims is—from a legal perspective—more extensive in insolvency
than it was while the guarantor was still
trading. While guarantees in insolvency
only give the banks an unsecured claim
that has no structural priority over other
third-party creditors and is settled from
the regular insolvency quota alongside
other third-party creditors, outside
insolvency, the claim under the guarantee would be restricted to the amount
by which the net assets of the GmbH
exceed the registered share capital.
While the facts of the decided case only
concerned an upstream guarantee, mean-
ing they did not deal with in rem or other
genuine upstream securities, it is notable
that the reasons of the courts appear
to be deliberately abstract and broad
enough to cover any type of upstream
collateral. The effect of this judgment
is even more far-reaching when applied
to genuine upstream securities such as
global assignments or land charges. Such
in rem securities give the beneficiary
bank a secured priority claim and right
to preferred satisfaction in insolvency.
If they are indeed untouched by the
limitation language in insolvency, this
would result in a situation in which the
lending banks will be entitled to enforce
and satisfy their claims without any
regard to capital maintenance rules in
preference to other third-party creditors.
Practical implications for lenders and
grantors of subsidiary security
Until further guidance by future court
decisions or by the Federal Supreme
Court (if this decision is successfully
revisited on further appeal), it can be
expected that banks will revise the wording of the limitation language they are
willing to accept from borrowers or their
subsidiaries in such a way as to expressly
state that the limitations under capital
maintenance rules only apply and limit
the pre-insolvency enforcement by the –>
17 – Corporate law & finance – BLM – No. 2 – September 25, 2014
lenders, but exclude their applicability
in insolvency both for guarantees and
all other types of upstream security.
The courts further ruled that the limitation language also does not apply as
long as the subsidiary has received any
unrepaid loan from the parent rather
than just and specifically (part of) the
bank loan in question because such loans
serve as compensation for the granting
of securities. In the case at hand, the
borrower-shareholder and the guaranteeing subsidiary were engaged in extensive
intercompany lending. The shareholder
had initially passed on a tranche of the
specific bank loan to the guarantor. In the
intervening years, however, the subsidiary
had likely repaid this specific tranche to
the shareholder but reborrowed unrelated funds under a cash-pool system.
In practical terms, this will either result
in a further qualitative narrowing of the
scope of applicability for the limitation
language as many groups of undertakings will operate downstream loans
in the context of cash-pool systems even
if the secured loan as such is reserved
exclusively for the parent-borrower
level and not on-lent, or will result in
the borrower having to reformulate the
limitation language in the negotiations
with banks to only exempt specifically
on-lent funds from the limitation.
From a bank’s perspective, the court’s
view will be a very welcome one. For
years, banks have reluctantly accepted
limitation language as an inevitable,
but bothersome restriction necessary
to allow managing directors to safely
enter into upstream securities. On the
other hand, they have always argued that
such language often bites hardest in the
very scenario for which such security is
granted, the financial breakdown of the
borrowing shareholder that leaves the
lending bank looking for alternative payers. If the decision of the Higher District
Court of Frankfurt becomes unappealable, this argument at least no longer applies once such financial distress reaches
the stage at which the guarantor/security
grantor itself has entered insolvency
because banks are then freed from the
shackles of capital maintenance and the
corresponding limitation language.
For managing directors, the decision
means that the scope of the limitation language may need to be revised
in future negotiations to reflect the
key conclusions of the judgment.
The legal community as such will be left
to assess whether some of the more general points in the judgment really have
the broad applicability the courts have
seemed to have given them. Without going into the finer details, it is, for instance,
not true that managing directors are
generally replaced in insolvency proceedings. There are insolvency proceedings
where the management stays in charge
of the debtor during insolvency, for
example in protective shields proceedings (Schutzschirmverfahren) and own
administration proceedings (Eigenverwaltung). It is debatable whether the court’s
reasoning justifies that the limitation
language would also automatically cease
to apply in such proceedings. Similarly,
the argument that the registered share
capital is regularly used up in insolvency
anyway, thus removing most of the
purpose of the limitation language, is
not always and automatically sound
if insolvency proceedings are initiated
not based on over-indebtedness but
rather purely due to illiquidity where
significant illiquid assets may exist from
a balance-sheet perspective. As such,
it will be interesting to see how this
judgment will affect future negotiations between lenders and borrowers
in this sensitive area between general
German corporate law and international
financing law and legal principles. <–
Dr. Birgit Friedl,
Gibson, Dunn & Crutcher LLP,
[email protected]
Dr. Marcus Geiss,
Gibson, Dunn & Crutcher LLP,
[email protected]
18 – Corporate law & finance – BLM – No. 2 – September 25, 2014
Here we go again
Mezzanine financing makes a comeback
By Dr. Nina-Luisa Siedler
ezzanine financing acquired
a bad rap during the financial
crisis. This was primarily because standardized mezzanine programs
(also called standard mezzanine) bundled
participation rights in securitization
vehicles. When offering such mezzanine
financing, particularly in the latter years
of the crisis, the necessary care was not
always taken. As a result, a number of
investors incurred significant losses.
Mezzanine financing is now making a
comeback and is again being offered by
investors in various forms. The variety of
forms mezzanine finance can take often
masks what exactly this type of financing involves. The instruments that are
typically offered as mezzanine capital—
subordinated loans, silent participations
and profit participation rights—are
subject to rudimentary regulation at best.
The contractual freedom that prevails
in Germany allows for an almost unlimited range of structures. It is therefore
worth reading through the fine print
to find out exactly what type of capital
is involved in each individual case.
The variety of forms mezzanine finance
can take often masks what exactly this type
of financing involves.
© Thinkstock/Getty Images
Both debt and equity
The defining characteristic of any mezzanine financing is that it has features
of both debt and equity—depending on the viewpoint. The distinction
between equity and debt is important,
particularly from the accounting and the
taxation perspective. It is also significant
in terms of ratings (external ratings
by rating agencies and internal –>
19 – Corporate law & finance – BLM – No. 2 – September 25, 2014
ratings by banks). In each of these cases,
mezzanine capital can only constitute
either equity or debt. At the same time,
mezzanine capital may be classified
as equity from one perspective and as
debt from another. And that is exactly
what mezzanine financing aims to do:
From an accounting perspective and for
rating purposes, it must create equity in
order to strengthen the capital ratio, an
important financial indicator. From a tax
perspective, however, it creates debt so
interest payments can be deducted since
the costs of equity do not enjoy such tax
treatment. But only a few of the instruments offered under the heading of
mezzanine financing achieve these aims.
Reported equity
Ideally, mezzanine financing is reported
as equity on the balance sheet. Under the
accounting regulations of the German
Commercial Code (Handelsgesetzbuch,
or HGB), financing instruments based on
company law must initially be classified
as equity. This pertains in particular to
capital contributions by shareholders,
including, where applicable, those in
reserves. If there is no such company-law
basis, a purely contractually based financing instrument will only qualify as equity
under specific conditions as outlined
below. The situation is similar though
not identical under the International
Financial Reporting Standards (IFRS).
Firstly, to be reported as equity, the
capital provided must be subordinate to
other liabilities as regards repayment.
This comes as no surprise. An intrinsic
feature of mezzanine capital is that it is
subordinate to senior financing (typically
the traditional bank loan). In this regard,
IFRS is stricter than the HGB and even
requires the financing to be placed on
the level of the most subordinate class of
investors, that is, equal to shareholders.
“Genuine” mezzanine
­instruments that create equity
on the balance sheet but are
regarded as borrowed capital
for tax purposes are rare
Another requirement of reported equity
is that the interest owed for such financing must be linked to performance. IFRS
seems to be somewhat more generous on
this point and only requires the returns to
be primarily linked to earnings. However,
fixed interest is prohibited under both
accounting systems. A typical simple
subordinated loan is thus excluded from
being an equity capital instrument.
Under the HGB, participation in losses up
to the full amount is also a prerequisite
for classification as equity. IFRS refers
here to a pro-rata right to liquidation
proceeds—along with all those in the
most subordinate class, that is, shareholders. This criterion disallows both
the subordinated loan and the typical
silent partnership, in both of which, as a
rule, there is no participation in losses.
Finally, under the HGB, reported equity must be provided on a longer
term basis. A five-year term together
with a two-year termination notice
should suffice. Short-term bridging
finance is therefore not sufficient.
Accordingly, this essentially means that
only atypical silent partnerships (which
differ from typical silent partnerships
primarily a result of the loss-participation
feature) and equity-like participation
rights have the potential to be recognized
in the balance sheet as equity capital
instruments. Instruments that do not
fulfill all of the above criteria must be
reported as debt on the balance sheet.
Borrowed capital for tax purposes
In addition to the aim of creating equity
on the balance sheet, mezzanine financing should, from a taxation perspective,
create borrowed capital so interest payments can be reported as a tax-deductible
expense. Such funds must not be assessed as (non-tax-deductible) dividends.
Dividends represent revenue from shares
in companies and in participation rights
that involve the investor in both the
profit and the liquidation proceeds of
the issuer. The same applies to revenue
from financial instruments equivalent to
equity participation rights. These include
instruments for which a profit-related
interest is payable and for which repayment may be claimed only upon liquidation of the debtor or in the distant future
(after at least 30 years). All other payments on funds that do not meet these
criteria essentially qualify as interest.
This clearly shows that “genuine”
mezzanine instruments that create
equity on the balance sheet but are
regarded as borrowed capital for tax
purposes are rare. These include equity
participation rights that involve investors in the profits and losses but not
in liquidation proceeds. Appropriately
designed subordinated loans with
profit participation may be included.
The same applies to atypical silent
partnerships. But, unlike common
practice, they must be designed in
such a way as not to create a commercial partnership for tax purposes. –>
20 – Corporate law & finance – BLM – No. 2 – September 25, 2014
Bank view
There are, however, hardly any providers
that offer these types of instruments. For
most investors, the risk is too high due to
the obligatory participation in losses. It is
therefore easier to find structures involving simple subordinated loans or typical
silent partnerships without loss-sharing.
In this regard, it is worth talking to the
financing banks: Even if such instruments
do not provide equity on the balance
sheet, internal bank rating systems may
allow them to qualify as equity. It is often
the financing banks’ minimum capital
ratio requirements that prompt a company to look into mezzanine financing.
The strict accounting view is not critical
in such cases. The balance sheet and the
balance sheet ratios derived therefrom
only form the basis of the rating. In the
course of their rating process, the banks
make adjustments that better illustrate
the economic reality. These include evaluating what—in strict accounting terms—
constitutes loan instruments, such as
equity capital. The requirements in this
respect are not uniform. Often subordination suffices although the “depth”
requirements of subordination essential
for the mezzanine investor may vary.
Sometimes subordination behind bank
loans is enough, which nevertheless al-
lows the mezzanine capital to rank above
genuine equity and, if the bank is secured,
puts the mezzanine investor on the
same level as other unsecured creditors.
Sometimes qualified subordination is
required (down to the shareholder level).
The requirements of the relevant bank
should therefore be explored in detail.
Structural subordination
Finally, there is also the possibility of
mezzanine financing at the shareholder
level of an operating company. In this
regard, the mezzanine investor provides
a loan to the shareholder as the holding
company of the operating company, and
the holding company channels funds to
the operating company. This may take
place either (a) by way of a contribution to the capital reserves, whereby
fresh equity is created, from all perspectives, at the operational level; or (b) the
funds are provided as a (subordinated)
shareholder loan. Such subordinated
shareholder loans are also recognized
by many banks as (economic) equity.
In this structure the mezzanine investor has no direct access to the assets
of the operating company. The investor
only participates in the profits of the
operating company via dividend payments or payments on the subordinated
shareholder loan made to the holding company it is financing. A formal
subordination agreement is not necessary. Subordination simply arises from
the structure. This arrangement is also
known as structural subordination.
The appeal of this structure is that it is
so straightforward. The investor provides
a standard loan (without subordination,
loss participation or the like) to the holding company. At the level of the operating
unit, competition between the various
investors is avoided. There is no inter­
creditor agreement, which would normally be necessary to regulate the relationship between the senior lender and the
mezzanine provider should both provide
financing directly at the operational level.
The mezzanine investor may be given
securities such as share pledges over
the shares in the holding company and,
where possible, over the shares in the
operating company without such security
being prevented from foreclosure by
subordinating the mezzanine investment.
In economic terms, such a loan is still
a mezzanine investment with the
corresponding risk position between
borrowed and equity capital. The risk
is reflected—as with any mezzanine
financing—in the cost of financing. <–
Dr. Nina-Luisa Siedler,
Attorney-at-Law, Partner,
DLA Piper, Frankfurt
[email protected]
21 – Compliance – BLM – No. 2 – September 25, 2014
Tone from the top
Compliance responsibilities of management bodies, directors and officers of domestic and
foreign subsidiaries of German groups
By Dr. Robert Weber, Dr. Michael Müller and Darryl Lew
fter 10 years of discussion about
the legal need for ­German
companies to introduce
compliance structures and how the
content of such structures should be
designed, “compliance” can now be said
to have arrived. While there are—with
a few industry-specific exceptions—no
explicit legal obligations requiring the
management of a German company to
establish a compliance management
system (CMS), there now appears to be a
consensus that the organizational duties
incumbent on the management of every
company of a certain size include the
duty to take organizational precautions
to ensure that the company’s management bodies, directors, officers and
employees conduct themselves in compliance with the many legal duties arising
from the activities of the company.
Compliance is a top priority for management. It has come to be seen as common
sense that ultimate responsibility for setting up a CMS and making sure it works
lies with a company’s management
and that when management comprises
several individuals one of them must
be allocated that responsibility explicitly under the terms of a corresponding
allocation of duties. When it comes to
the decision on what to include in the
CMS, no executive board in today’s world
would choose to introduce anything
less than the bare minimum of a code
of conduct applying to all employees, an
anticorruption policy, a whistleblower
system and compliance training. Finally,
the Institute of Public Auditors in Germany (IDW) has also created a formalized
way of evaluating the functionality of a
CMS and obtaining certification by introducing its IDW PS 980 auditing standard.
Recent compliance developments as a result
of the Siemens/Neubürger judgment
Tone from the top: The Munich Regional Court’s decision in the Siemens/Neubürger case
has disturbed the relative calm in the compliance community’s discussion about CMS
© iStock/Thinkstock/Getty Images
The relative calm that had in recent years
returned to discussion among members of the compliance community as
to whether and how a CMS should be
established has now been disturbed by
the Munich Regional Court’s so-called
Siemens/Neubürger judgment of Dec. 10,
2013. Over the years since 1999, a system of “slush funds” had been set up at
Siemens AG, with the moneys parked in
those funds being used to make corrupt
payments. The members of the Siemens
AG management board—among them
Heinz-Joachim Neubürger who had –>
22 – Compliance – BLM – No. 2 – September 25, 2014
served as chief financial officer since
1998—had been repeatedly informed
about the large number of bribery cases
occurring abroad and the poor organization of the compliance organization,
yet failed to take adequate measures to
clarify what happened and to review the
system, at least according to the view
expressed by the Munich Regional Court.
Former CFO Neubürger was sued for the
costs incurred by Siemens AG for the
services of a U.S. law firm performed in
connection with internal investigations.
Because of a payment made to a recipient
in Nigeria for an allegedly invalid consultancy contract, he was subsequently
ordered by the court to pay damages
to Siemens AG totaling €15 million.
Although not yet final, the judgment
has led to a controversial debate and a
sharpened general awareness that the
management of a company can be held
liable for damages by that company if
they fail to comply with their duties to set
up a CMS or fail to do so sufficiently. In
addition—as one of the many individual
aspects of this decision—the Siemens/
Neubürger judgment has focused attention on group-related issues. Both the
system of “slush funds” established at
Siemens AG and the corrupt payments
themselves took place mainly at the
level of the Siemens AG subsidiaries.
CMS requirements for group subsidiaries
Is the management of a German group
parent company required to set up a CMS
covering not only the parent company
but also the group’s affiliated companies?
Again, there are no legal provisions explicitly addressing this question. According to the prevailing opinion in Germany,
however, the compliance duties incumbent on the management of a company
also extend to that company’s (domestic
and foreign) subsidiaries. This is also the
premise assumed by the German Corporate Governance Code, which requires
the management board of an exchangelisted stock corporation (Aktiengesellschaft, or AG) to work toward ensuring
group companies’ compliance with the
law and the company’s internal policies.
There are some situations, however, where working toward achieving group companies’ compliance is not a simple matter.
If there is a control agreement in place
between parent and subsidiary, then
the parent is at all times entitled to
issue instructions to the management
of the subsidiary and obtain information on the activities of the subsidiary regarding their management. The
instruction and information rights
enable the management board of the
parent company to readily integrate
the subsidiary into a group-wide CMS.
Company managers can
be held liable for damages
­arising from compliance of­
fenses if they had failed to set
up a proper CMS
If there is no control agreement in place
between parent and subsidiary, in other
words if they form a so-called de facto
group, then a distinction has to be made
between a subsidiary organized as an AG
and a subsidiary organized as a limited liability company (Gesellschaft mit
beschränkter Haftung, or GmbH). In the
case of a subsidiary GmbH, compliance
measures can be affected either by exercising the rights a shareholder has under
the GmbH Act to issue instructions and
be kept fully informed. In contrast to
the management of a subsidiary GmbH,
however, the management board of a
subsidiary AG in a de facto group is not
bound by instructions from the parent
company. In that case the subsidiary’s
management board is independently
responsible for managing the subsidiary. This means that such a subsidiary
AG cannot be compelled by its parent
company to accept integration within a
group-wide CMS. Similarly, according to
the generally held opinion, the parent
company does not have the right to
obtain the information necessary for the
purpose of enforcing compliance-related
reporting by the subsidiary. The question
of how to deal with the resulting compliance control deficits in a de facto group
remains largely unresolved. Legally
speaking, the parent company has to
rely on the subsidiary AG’s management
board deciding more or less voluntarily
to agree to the company being included
within the group-wide CMS. Although
they are not obliged to implement
parent company directives in the field
of compliance, they do have the right
to do so, provided that the measures
proposed by the parent are in the company’s best interests. In this context, it is
generally considered especially helpful
if the persons appointed to the board
of a subsidiary AG are also directors or
managers in the parent company. At
the very least, the management board
of the parent company should make
sure it is represented on the supervisory
board of the subsidiary AG so as to be
able to use that position to persuade the
management board of the subsidiary AG
that acting in the best interests of the
subsidiary AG entails giving favorable –>
23 – Compliance – BLM – No. 2 – September 25, 2014
consideration to the option of
integrating the subsidiary AG
within the group’s CMS.
Can the management of a subsidiary integrated into a group-wide CMS
simply sit back and relax with regard
to their compliance responsibilities?
Definitely not. As group companies
will always retain a degree of legal
independence, it follows that the fundamental compliance obligation will
also remain at the level of the group
companies and not be substituted by
a group-wide compliance organization
set up at the parent company. This does
not mean that each subsidiary must
establish and maintain an independent compliance organization of its own.
Rather, the management of a subsidiary is entitled to rely on the compliance
organization of the parent company.
However, they must first satisfy themselves that the group-wide compliance standards are appropriate and
sufficient for the subsidiary company.
For example, if a company is the only
subsidiary in the group that exports
sensitive goods (such as dual-use
items) and if the group’s CMS does not
include special export control mechanisms, then the management of the
subsidiary must compensate for this
deficit, for example, by implementing
an export control policy and appointing
an export control officer. As a result, the
compliance responsibilities of the subsidiaries’ management bodies remain
in place in principle, but are modified.
The more decentralized the respective
group is and the more fragmentary and
incomplete the control of group-wide
compliance by the top management,
the greater the compliance duties
incumbent on subsidiaries’ management bodies. Even if the group does
have an effective group-wide compliance system in place, the management
of a subsidiary is nevertheless required
to have a minimum level of compliance
resources available at their own company, so as to be able to carry out compliance duties themselves if necessary.
Implementation of a CMS in
foreign group subsidiaries
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Do these principles also apply to the
management of a foreign subsidiary
affiliated with the group, for example, the directors of a U.S. corporation
belonging to a German group? Can
they be instructed to integrate their
company into a group-wide CMS
designed by the German group parent?
And if so, which basic compliance duties must nevertheless be still fulfilled
by the U.S. companies themselves? –>
24 – Compliance – BLM – No. 2 – September 25, 2014
The extent to which a German parent
can mandate the implementation of
a group-wide CMS at its U.S. subsidiary largely depends on the contents
of the subsidiary’s governing documents, such as its bylaws. Typically, a
U.S. company’s board of directors or
managers is responsible for adopting
a compliance plan. If a German parent
company has the right to appoint and/
or replace members of its U.S. subsidiary’s board of directors and if the U.S.
subsidiary’s board of directors has the
authority to implement a compliance
plan, then the German parent effectively can instruct the subsidiary’s directors
to implement a group-wide CMS so
long as the CMS complies with applicable U.S. federal and state law and
does not interfere with the directors’
fiduciary duties to the shareholders.
These general principles apply regardless of whether the U.S. subsidiary is
a private or publicly listed company. If
the U.S. subsidiary is a wholly owned
subsidiary of a German parent, then
the parent could appoint its own board
members to the U.S. subsidiary’s board
and in this way afford a high level of
control over the implementation of a
group-wide CMS. However, if the U.S.
subsidiary is a publicly listed company
in which the German parent owns a
controlling interest, then the subsidiary’s
board would generally need to comply
with applicable listing rules (NYSE, NASDAQ) regarding independent directors.
According to NASDAQ Marketplace Rules
4000 et seqq., NASDAQ-listed companies have to establish certain mechanisms involving independent directors to
provide transparency for their (potential)
investors. While independent directors
can also be replaced by the shareholders (including the German parent acting
in its role as shareholder), these listing
requirements limit, to some extent, the
replacements who may be selected,
because the parent company’s board
members generally do not fulfill the
requirements of an independent director according to the NASDAQ Rules.
As for a U.S. subsidiary’s compliancerelated obligations apart from any applicable to the German parent under
German law, U.S. requirements and standards for a compliance program can arise
from a variety of federal and state laws,
including, for example, the 1934 Securities
Exchange Act (applicable to publicly listed
companies), the U.S. Sentencing Commission Guidelines Manual, the SarbanesOxley Act, the Foreign Corrupt Practices
Act and applicable state corporate law.
In addition to requirements arising
under U.S. law, a subsidiary’s governing
documents could also mandate requirements for a compliance program.
Although no German law provisions
obliging corporations to set up a CMS
exist, the Siemens/Neubürger judgment
has clarified that if they fail to do so,
company managers can be held liable for
damages in case of compliance offenses.
The requirement to establish an effective CMS also extends to the affiliated
subsidiaries in a company group. The
approach to implementing an effective
CMS in a company group depends on
whether a control agreement between
the parent company and its subsidiary is
in place or whether the company group
is a so-called de facto group. In the event
that the affiliated companies are comprised of U.S. subsidiaries, the compliance situation is yet more complicated.
In this case the subsidiaries’ management has not only to comply with the
centralized CMS but also to obey specific
U.S. legislation. As publicly listed U.S.
subsidiaries have to appoint independent directors, it is more difficult for a
German parent to enforce a CMS in the
subsidiary. The parent company’s managers generally do not fulfill the criteria
for becoming independent directors,
which is why the possibility to maintain
influence over the subsidiary by integrating the parent company’s own management personnel is more challenging. <–
Dr. Robert Weber,
Attorney-at-Law, Partner,
White & Case, Frankfurt
[email protected]
Dr. Michael Müller,
Attorney-at-Law, Counsel,
White & Case, Frankfurt
[email protected]
Darryl S. Lew,
Attorney-at-Law, Partner,
White & Case, Washington, D.C.
[email protected]
Business Conference
The Transatlantic Marketplace:
Challenges and Opportunities Beyond 2014
Speakers include (in alphabetical order):
Eighth Annual Transatlantic Business Conference
Strategic inspiration and impulses for
the economic and political partnership
Nov. 11–12, 2014
Commerzbank Tower, Frankfurt/Main
Hilton Frankfurt Airport, Frankfurt/Main
Prof. Dr. Dr. Andreas Barner
Chairman of the Board of
Managing Directors,
Boehringer Ingelheim
Ulrich Grillo
Matt Brittin
President, Federation of
Vice President of Northern
and Central Europe Operations, German Industries (BDI)
Google Inc.
Jürgen Hardt
Coordinator of Transatlantic
Cooperation, German Federal
Foreign Office
Annette Heuser
Executive Director,
Bertelsmann Foundation,
Washington, DC
Dr.-Ing. Heinrich Hiesinger
Chairman of the Executive
Board, ThyssenKrupp AG
Timotheus Höttges
Chief Executive Officer,
Deutsche Telekom AG
Dr. Werner Hoyer
President, European
Investment Bank
Martina Koederitz
General Manager,
IBM Germany
David McAllister
Member of the European
Parliament; Chair of the
Delegation for Relations
with the US
Michael Reuther
Member of the Board
of Managing Directors,
Commerzbank AG
David A. Ricks
Senior Vice President,
Eli Lilly & Company;
US Co-Chair, Trans-Atlantic
Business Dialogue (TABD)
Kasper Rorsted
Chief Executive Officer,
Henkel AG & Co. KGaA
Bernhard Mattes
AmCham Germany
Additional Information:
Dr. Meghan Davis, F.A.Z.-Institut, Frankenallee 68–72, D-60327 Frankfurt/M., T +49 69 7591-2262, E [email protected]
26 – Internet & law – BLM – No. 2 – September 25, 2014
Industry 4.0
Digital business, autonomous systems and the legal challenges
By Dr. Markus Häuser
The German government uses the term
“Industry 4.0” as the title of a government project promoting the computerization of traditional industries and the
creation of intelligent factories (smart
factories) that will be supported by cyberphysical systems and the IoT. The digits
“4.0” in Industry 4.0 stand for the fourth
industrial revolution: the transition of
production from digital processing to
fully interconnected processes, products
and services. It follows the evolution of
production processes for tradable goods
from manufacturing to industry production (the first revolution), the move from
steam-driven machine production to
electricity-driven production (the second
revolution) and the shift from analog
processing to digital processing and
microelectronics (the third revolution).
One of the major features of Industry 4.0 is the ability of machines and
devices to communicate with each
other without a human interface. M2M
communication is the basis for intelligent production and logistics processes.
The exchange of data between machines and devices creates a virtual
network that is often called the IoT. The
data exchanged between two or more
machines or between machines and
a centralized IT infrastructure derive
from controls and sensors that measure
various types of actions and conditions,
including a vehicle’s GPS position, a
car’s fuel level or the driver’s heart rate.
All of these data are recorded and made
part of the virtual network. Enormous
amounts of data are generated, analyzed, processed and stored. This is why
the terms “big data” and “smart data”
can be heard everywhere today. –>
© Rodolfo Fischer Lückert
he buzzwords “Industry 4.0”
and “digital business” represent the start of a complex
transformational process that will
deeply affect industry and society during the next decade. This transformation is based on the convergence of
the real (analog) world and the virtual
(digital) world by means of machineto-machine (M2M) communication,
autonomous systems (for example,
robotics) and the Internet of Things (IoT).
27 – Internet & law – BLM – No. 2 – September 25, 2014
M2M communication and smart data will
make devices and machines more autonomous than ever before. The Google Car
is one very popular example of this form
of autonomy. The car without a steering
wheel is the futuristic symbol for autonomous systems in everyday life and a good
example of digital robotics. Sensors help
the car recognize obstacles. GPS provides
the position, and the Internet connection is a source of whatever information
is needed. In addition, the car itself will
be online and connected to other cars
and infrastructure networks. At the same
time, communication between humans
and machines will be made much easier
by advanced voice recognition and various forms of “wearables” (for example,
Google Glass, interactive headphones and
watches). Many IT specialists now predict
that wearables will be the typical form of
interface between humans and machines.
Businesspeople are excited about the
new possibilities of Industry 4.0, M2M
and IoT, and talk about unbelievable
growth potential. Business analysts like
Gartner, Inc., believe that the economic
impact of the IoT will exceed $14 trillion by 2022 with more than 20 billion
globally connected devices (compared
with 8 billion connected devices in 2014).
While the number of desktop and mobile
PCs is assumed to remain more or less
stable, the number of interconnected
IoT devices will markedly increase.
M2M communication,
the Internet of Things and
autonomous ­machines and
devices pose many new and in­
teresting legal challenges and
But the enormous amounts of data (big
data) generated by M2M communication and analyzed by the latest software
and the newest generations of Industry
4.0 computers and the challenging
capabilities of autonomous systems and
machines are something more than the
stuff of business executives’ dreams. They
also form the basis of many new and interesting legal challenges and questions.
German and European lawmakers, judges
and legal advisors will have to find answers to these questions in order to provide business and industry with a clearly
defined legal framework for their investments in the research and development
of Industry 4.0 products and services.
The legal debate surrounding these new
questions is just beginning. Major issues
being discussed include data owner-
ship (and, of course, data privacy and
protection), regulatory issues concerning
new Industry 4.0 products and liability questions regarding the actions of
autonomous machines and devices.
Data ownership
One common characteristic of Industry
4.0 and digital business is their generation and use of an enormous amount of
data. Many companies make substantial investments in the development of
new storage and processing capacities
for such data and the creation of new
intelligent analysis tools and software.
Analyzing data and turning it from “big
data” into “smart data” involve transforming information into knowledge
that is filled with business value. For
this reason, these companies want to
ensure that such data (even if they are
not personal data or personalized data)
can be legally protected and that the
companies that create and analyze such
data can claim property rights to them.
Typically, European and national laws
distinguish between tangible property
and intellectual property rights. Examples of intellectual property rights (that
is property rights in non-tangible goods)
are patent rights, trademark rights and
copyrights. Data, or information, are nei-
ther tangible objects nor are the subject
of protection under statutory intellectual property rights. Therefore, data are
currently not protected by a dedicated
property right, and there is no such thing
as legal “ownership” of data. In Germany
and in many other jurisdictions, data are
only protected to the extent that such
data represent a business or trade secret,
consist of personal or personalized data
or constitute a database. Furthermore,
some jurisdictions, including Germany,
provide protection against criminal
offenses like data espionage, phishing or alteration of data. The fact that
European and national laws, however, do
not treat data as an object that, regardless of its content or storage medium,
can be owned or traded is often seen as
a hindrance to investments in Industry
4.0 technologies. For this reason, some
authors of recent legal literature try
to establish an ownership-like protection of data, for instance, through the
analogous application of statutory
provisions that grant ownership rights in
tangible objects. In Germany, other legal
experts claim that data can be protected
in accordance with the rights granted
by the German statutory law regarding the possession (Besitz) of goods. It
is doubtful whether the advocates of
ownership rights in data will gain much
support from lawmakers and judges. –>
28 – Internet & law – BLM – No. 2 – September 25, 2014
For the sake of economic prosperity,
the German legal system—and those
of many other European countries—is
not designed to protect ideas or information in general. Information is and
will remain a free good. Protecting data
by establishing an ownership right
in data might cause more harm than
good. Such an ownership right would
be designed to protect investments
made in the digital business and Industry 4.0 sector but might negatively
affect the free use and exchange of
data. The opportunity of using and exchanging data without being impaired
by ownership rights can be the basis
for further innovations and inventions
in the digital arena. With regard to
the protection of investments made
by Industry 4.0 and digital business
companies, these companies will have
to work with their legal advisors to
protect their innovations and inventions by means of intellectual property
rights, for example, copyrights for software or patent rights for inventions.
Regulatory issues
As stated earlier, M2M communication
and advanced computing systems will
facilitate the development of complex
autonomous systems. The use of such
autonomous systems will make it
necessary for European legislators to
amend existing regulatory laws and
possibly to create new ones. One good
example of current regulatory hurdles is
the heavily regulated approval process
for road vehicles. It will have to be
substantially modified to reflect future
developments and the use of autonomous vehicles such as the Google Car.
Current EU directives and regulations
issued by the United Nations Economic
Commission for Europe regarding road
vehicles do not allow fully automated
processes like autonomous steering
systems. A small step in this direction
was made in May 2014 by an amendment to the Vienna Convention on Road
Traffic (VCRT), an agreement covering
standard traffic rules. The basic principle implemented in this convention
states that “drivers shall at all times
be able to control their vehicles.” The
May 2014 amendment allows the use
of autonomous systems under the
condition that they can be overridden
or switched off by the driver. The impact
this step will have on EU and national
law is not yet clear. While the latest
amendment to the VCRT is a first step
in the direction of allowing autonomous driving systems, many additional
steps will be necessary before the use
of autonomous driving technologies
will be permitted on public roads. –>
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29 – Internet & law – BLM – No. 2 – September 25, 2014
If devices and machines (vehicles and
robots for instance) communicate and
interact with each other and if they
are increasingly capable of acting on
their own, legal questions regarding the
responsibility for damage and injuries
caused by such autonomous devices and
machines will arise. The German legal
system, like many others, distinguishes
between different concepts of liability.
While Industry 4.0 may have a
large impact on many fields of
law, it remains to be seen when
and to what extent national or
EU legislators will spring into
The most fundamental distinction is the
one among reliance-based, fault-based
and strict (non-fault-based) liability.
While fault-based and reliance-based
liability concepts both focus on human
behavior, the concept of strict liability
is typically based on the realization of a
special risk. This risk may arise from the
operation of a machine. The German Road
Traffic Law establishes the strict liability
of a car owner (registered car owner) for
damage caused while the car is in use.
This is a good example of strict liability
(similar liability is established in Air Traffic
Laws for the use of airplanes). While the
use of a car is legally permitted, such use
comes with the inherent operational risk
that people might be injured or killed in
an accident or that other cars might be
damaged. This example demonstrates
that the concept of strict liability seems
to be a suitable concept regarding the responsibility for the actions (or omissions)
of autonomous systems. While the use of
such systems might be legally permitted,
their use comes with the inherent risk
of malfunction. Consequently, the user
or owner of such autonomous systems
should be responsible and liable for
any damage caused by the system. The
financial risk arising from such liability
could be covered by a respective insurance policy. It can therefore be expected
that, as a greater number of autonomous
systems are developed and used, more
laws and regulations will be written to
establish a strict liability of the users
or owners of such systems. While the
current operational risk arising from the
operation of a machine encompasses
human error as well as machine failure,
an increasing degree of automation will
gradually lower the risk of human error
and the operational risk will progressively
be limited to machine malfunctions.
The elimination of the risk of human
error is one aim behind the development of autonomous systems such as
self-driving cars. Nevertheless, when
using autonomous machines and devices,
fault-based liability of the user might still
be necessary when it comes to typical
failures of the user, for example if damage is caused because the user did not
heed the device’s security information.
M2M communication, the IoT and autonomous machines and devices as part
of Industry 4.0 hold amazing business
opportunities. At the same time, these
advances create new legal challenges
that will have to be addressed by legislators, judges and legal advisors. The legal
discussions regarding these challenges
are just beginning, and jurisdiction is still
rare, if existent at all. While Industry 4.0
may have a large impact on many fields
of law, it remains to be seen when and
to what extent national or EU legislators
will spring into action, especially with
regard to liability and regulatory issues as
well as questions of data ownership. <–
Dr. Markus Häuser,
Attorney-at-Law, Partner,
CMS Hasche Sigle, Munich
[email protected]
30 – Internet & law – BLM – No. 2 – September 25, 2014
© Rodolfo Fischer Lückert
New challenges ahead
Cloud computing: contracting and compliance issues
for in-house counsel
By Dr. Severin Löffler and Shahab Ahmed
any organizations across
the globe are adopting
cloud-based services to
reduce information technology (IT)
costs and to meet rapidly growing
business demands. Organizations now
have to think about purchasing IT as
a service instead of making the traditional hardware and software purchase
decisions. This fundamental paradigm
shift is not only placing new demands
on procurement professionals, it is
also presenting new challenges for
the in-house counsel. Many in-house
counsel have negotiated IT outsourcing
agreements for decades, but they are
relatively new to cloud contracts. Cloud
services contracts are different than
traditional IT outsourcing agreements,
because a cloud service is designed
as a multitenant service where com-
puting and operating resources are
shared across potentially millions of
customers—making the scale and
consistency extremely important to the
viability of the cloud business model.
Essential characteristics
of cloud computing
The key aspect of the cloud’s technical architecture is the “multitenant”
nature of the platform. The functional
and technical aspects of the cloud are
designed to serve a large customer
base from the same platform, limiting the opportunities for customization but making scale and consistency
critical factors for controlling operating
expenses. The cloud business model is
often dependent on receiving relatively
small sums of revenue from a very large
base of customers. Cloud
economics also depends
on the ability of cloud service providers to operate large,
interconnected, efficient and strategically placed data centers. The location
of these data centers depends on many
factors, such as geographic proximity to
customers, operational cost structures,
legal and regulatory environments
and political and safety concerns.
In a typical IT outsourcing arrangement, a customer outsources all or parts
of its IT functions to an IT outsourcing provider. An outsourcing customer
exercises a great deal of control over
the operations of outsourcing arrangements since each contract is designed
for an individual customer with specific
needs in mind. The customized nature
of the deal provides flexibility to accommodate unique functional and
operational requirements as the costs
are directly passed back to the individual
customer. The technology architecture of
the outsourcing platform is also customized; it may include handing over
existing IT systems and personnel to
the outsourcer for ongoing operations.
Contract negotiations
for cloud services
In-house counsel often engage in
tough and adversarial contract negotiations with IT service providers. A sound
understanding of the cloud business
model and the interests of each party
helps to reduce friction in the process. IT
outsourcing contract negotiations may
seem to provide a greater level of –>
31 – Internet & law – BLM – No. 2 – September 25, 2014
flexibility due to the unique nature
of each deal. In-house counsel can
sometimes become frustrated when
the cloud-services-contracting process
does not appear to offer the same
level of freedom. The reason behind
the different approach is not usually
the unwillingness of the cloud vendor
to negotiate; instead, it is the turnkey
nature of the cloud services, which
leaves less room for customizing the
highly standardized contractual terms.
In fact, in-house counsel should be
vigilant when a cloud vendor agrees to
terms which run counter to its business model and operations strategy.
Some of the most ­typical
­negotiation topics are:
_ Defined terms
It is important to understand the
key operative definitions since they
relate directly to the operations of
cloud services. For example, a contract may define the term “financial
data,” and describe the handling of
financial data by the cloud provider.
The defined terms in the contract
often do and should reflect how
the back-end systems are designed
and operated. Changing a definition
may mean modifying the system
design and operations, which can be
very disruptive and cost prohibitive.
Instead of focusing on changing defined terms, in-house counsel should
work to understand the definitions
in order to assess whether the cloud
service fits their business needs.
_ Data location requirements
Data location has become a hotly
debated topic in the industry, with
privacy advocates and regulators raising concerns about the risks of moving data to new jurisdictions. Cloud
economics demands scale, which
means most customers are served
from geographically dispersed data
centers. It also means that unless the
customer happens by chance to be
operating in the jurisdiction where
the data center is located, the customer will probably be served from a
remote data center location. Even if
the customer is located in the same
jurisdiction as the data center, customer data are probably transferred
to other locations for the purposes of
backup and disaster recovery, redundancy and support.
Instead of focusing their energy on
negotiating a specific location for
the data center, potential customers should ask for transparency
regarding where the main data sets
are stored as well as regarding –>
Exceptional thinking. Exceptional legal advice.
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 Energy and Infrastructure
 Healthcare
 Industrials
Investment Management
Private Equity
Real Estate
Sovereign Wealth
Transport and Logistics
Clifford Chance is one of the world’s leading law firms with 36* offices in 26 countries. In Germany, about
350 legal professionals advise from our offices in Düsseldorf, Frankfurt am Main and Munich.
Abu Dhabi Amsterdam Bangkok Barcelona Beijing Brussels Bucharest Casablanca Doha
Dubai Düsseldorf Frankfurt Hong Kong Istanbul Jakarta* Kyiv London Luxembourg Madrid
Milan Moscow Munich New York Paris Perth Prague Riyadh Rome São Paulo Seoul
Shanghai Singapore Sydney Tokyo Warsaw Washington, D.C.
*Cooperation with Linda Widyati & Partners in Jakarta
32 – Internet & law – BLM – No. 2 – September 25, 2014
associated data flows to make sure
their needs are being addressed.
_ European Union data ­transfer
The European Union has specific rules
governing the transfer of personal
data outside the European Economic
Area. Many reputable cloud vendors
have achieved certification under
the U.S.-EU Safe Harbor Framework
to transfer data to the United States
under EU rules. However, as a consequence of the NSA/PRISM developments, the European Parliament and
many privacy regulators have called
for more robust mechanisms and controls as well as a suspension of data
In order to comply with privacy laws,
cloud vendors may offer the EU’s
standard contractual clauses. These
clauses, which are published by the
European Commission, are a robust
and legally valid way to transfer personal data outside of the EEA. In-house
counsel should request to incorporate the standard contractual clauses
into the contract framework and
push for clarity on legal mechanisms
that are being used by cloud vendors
to transfer data outside Europe to
ensure compliance with EU rules.
_ Data privacy and security requirements
The privacy and security of personal
data has become a top area of concern
in the cloud computing industry due to
legitimate concerns about how customer data may be mined (for example,
to provide targeted advertising).
In-house counsel should demand a detailed data processing agreement from
cloud vendors to ensure privacy, security
and confidentiality terms are properly
addressed and meet the needs of the
customer. In-house counsel need to
confirm that the use of that data is limited to providing cloud services to the
customer. For example, the cloud vendor
should not be able to mine or use data
for other purposes, such as to support
consumer services like advertising.
_ Examination and audit rights
In a typical outsourcing arrangement,
the customer may exert control by
negotiating examination or audit rights
to assure appropriate documentation
and compliant operations. It is very
difficult for a cloud vendor to provide
such rights since the cloud vendor could
not possibly have millions of customers examining its data centers. Direct
customer audits would not only be cost
prohibitive, they would also be extremely disruptive to operations, potentially
putting at risk the data and operations
of other customers whose data is processed at the same location.
Cloud vendors that serve enterprise customers have recognized this challenge
and provide independent third-party
audits’ summary results and certifications, such as ISO 27001, as way to meet
customers’ needs. Potential customers
should ask for independent verification
by reputable third-party auditors instead of focusing on direct audit rights.
_ Data portability
Cloud services can hold key customer
data, and in case of termination of
the agreement, it is important that
customers are able to take their data
back. While there will be costs associated with such switchovers, customers should negotiate the terms that
allow data migration as needed.
In-house counsel should secure written commitments that the cloud
vendor does not acquire any ownership rights to customer data.
It is important to understand the differences between cloud services and traditional IT outsourcing models in order to
provide counsel and to negotiate successful deals. Cloud vendors with experience
serving enterprise customers under-
stand the complex needs of commercial
customers and can design appropriate
technologies, processes and contractual
safeguards to meet such needs. <–
Dr. Severin Löffler,
Assistant General Counsel, Head of the
Legal and Corporate Affairs Department
in Central and Eastern Europe, Microsoft
Corporation, Munich
[email protected]
Shahab Ahmed,
Director, Legal and Corporate Affairs,
Microsoft Corporation, Redmond
[email protected]
Editor’s note: This article is a shortened and
updated version of an article previously
published in the International In-house
Counsel Journal.
33 – Public procurement & Cartel law – BLM – No. 2 – September 25, 2014
The Intel judgment—old wine in new bottles?
EU antitrust law, rebate schemes and the “as efficient competitor” test
By Dr. Joachim Schütze and Dr. Dimitri Slobodenjuk
n June 12, 2014, the General
Court of the European Union
upheld the €1.06 billion fine
imposed by the European Commission
against U.S. chipmaker Intel for abusing
its dominant market position. The ruling
is a landmark decision, not least because
it represents the first fine exceeding
the €1 billion threshold the Commission has imposed against a single party.
It is also the first decision in which the
Commission and the court applied the
“as efficient competitor” test (AEC test).
By decision dated May 13, 2009, the
Commission imposed a fine pursuant
to Art. 82 of the EC Treaty (now Art. 102
of the Treaty on the Functioning of the
European Union, TFEU) of €1.06 billion
on Intel for having abused its dominant
position on the worldwide market for x86
central processing units (CPUs). Based on
the Commission’s findings, Intel abused
its dominant market position between
October 2002 and 2007 by executing a
strategy aimed at foreclosing its only
serious competitor, Advanced Micro
Devices, Inc. (AMD), from the market.
The measures implemented by Intel
included rebates to four major computer
manufacturers (Dell, Lenovo, HP and NEC)
under the condition that they purchase
all or almost all of their x86 CPUs from
Intel. In addition, the company awarded
payments to Media-Saturn-Holding
(MSH), a European retailer of electronic
equipment, under the condition that it
only sell computers containing Intel’s x86
CPUs. Moreover, Intel also made payments to HP, Acer and Lenovo contingent
on the cancellation or postponement of
launching of AMD’s CPU-based products.
According to the Commission, Intel held
a market share of roughly 70 percent or
even more, which made it extremely difficult for Intel’s competitors to enter the
market and/or to expand their business
activities. Given this strong market position, the chipmaker was an unavoidable
supplier of x86 CPUs since customers had
no choice but to cover at a least a portion
of their CPU demand with Intel products.
The measures imposed by Intel reinforced
customers’ loyalty to the chipmaker and
significantly reduced its competitors’ ability to compete on the merits of their x86
CPUs. The Commission concluded that
Intel’s strategy limited consumer choice
and lowered incentives to innovate. –>
Old wine in new bottles:
The Intel judgment is fully in line with
the settled case law regarding exclusivity
rebates and the AEC test.
© Thinkstock/Getty Images
34 – Public procurement & Cartel law – BLM – No. 2 – September 25, 2014
Which rebates can be granted by a
market-dominant undertaking?
In its decision to dismiss Intel’s appeal of the fine imposed by the Commission in its entirety, the General
Court referred to the established case
law on the EU level, stating that
a distinction should be drawn between three categories of rebates.
The first category comprises so-called
quantity rebates that are linked
solely to the volume of purchases
made from a market-dominant undertaking. Such quantity rebates are
generally considered not to have the
foreclosure effect prohibited by Art.
102 TFEU. If increasing the supplied
quantity leads to lower costs for the
supplier, the latter is entitled to pass
on that reduction to the customer
in the form of a more favorable rate.
The quantity rebates are therefore
deemed to reflect the gains in efficiency and economies of scale made
by the market-dominant undertaking.
The second category refers to rebates
that are conditioned on the customer’s
obtaining all or most of its requirements
from the market-dominant undertaking,
so-called fidelity or exclusivity rebates.
When applied by a market-dominant
undertaking, such exclusivity rebates
are incompatible with the objective of
undistorted competition within the
Common Market since they are generally
not based on an economic transaction
justifying this burden or benefit but are
rather designed to remove or restrict purchasers’ freedom to choose their sources
of supply and to deny other producers’
access to the market. The Court stated
that such rebates create a financial
advantage designed to prevent customers from obtaining their supplies from
competing producers and are therefore
abusive in the sense of Art. 102 TFEU.
An analysis of the circum­
stances of the case is not
­required to determine whether
or not exclusivity rebates
­exhibit a foreclosure effect
The third category relates to rebate systems in which the granting of a financial
incentive is not directly contingent on the
exclusive or quasi-exclusive supply by the
undertaking in a dominant position but
in which the mechanism for granting the
rebate may also have a fidelity-building
effect. These include inter alia rebate
systems that are dependent on the at-
tainment of individual sales objectives
and that do not constitute exclusivity
rebates since they do not contain any
obligation to obtain all or a given proportion of supplies from the dominant
undertaking. In analyzing whether the
application of such a rebate constitutes
an abuse of a dominant position, it is
necessary to consider all the circumstances, especially the criteria and rules
governing the granting of the rebate. In
particular, it has to be assessed whether,
in providing an advantage not based on
any consideration justifying it, the rebate
tends to remove or restrict the buyer’s
freedom to choose its sources of supply,
to bar competitors from access to the
market or to strengthen the dominant
position by distorting competition.
The rebates granted by Intel fall under
the second category: exclusivity rebates
that are, according to the settled case law,
by their very nature capable of restricting
competition. In this context, the Court
stated that the question of whether or
not exclusivity rebates can be categorized as abusive does not depend on
an analysis of the circumstances of the
case to establish a potential foreclosure
effect. As mentioned above, such an assessment is only necessary with regard
to rebates within the third category. The
Court argued that a rebate granted in
consideration of a customer’s obtaining all or most of its requirements from
an undertaking in a dominant position
creates a financial advantage indirectly
designed to prevent customers from
sourcing their supplies from competing
producers. The Court thus concluded that
an examination of the circumstances of
the case to determine whether or not the
rebate is designed to prevent customers from obtaining their supplies from
competitors is therefore not necessary.
With regard to the payments granted
to MSH, the Court found that the same
anticompetitive mechanism was in place
as with the measures implemented
vis-à-vis the computer manufacturers,
but at a stage further down the supply chain. Consequently, the Court was
of the opinion that the Commission
was only required to demonstrate that
Intel had granted a financial incentive subject to an exclusive condition.
An assessment of all circumstances
of the case was not necessary.
Relevance of the “as efficient
competitor” test
In its decision, the Court also found that it
was not necessary to conduct an AEC test
to determine whether or not the Commission correctly assessed the ability –>
35 – Public procurement & Cartel law – BLM – No. 2 – September 25, 2014
of Intel’s rebates to foreclose a competitor as efficient as Intel. This test,
which was introduced by the Commission in its Art. 82 Guidelines from
February 2009, establishes the price at
which a competitor as efficient as the
market-dominant undertaking would
have had to offer its products in order
to compensate a customer for the loss
of the rebate granted by the marketdominant undertaking. The Court concluded—again by referring to the settled case law—that in order to establish a potential anticompetitive effect,
it is sufficient to demonstrate the existence of a loyalty mechanism. Therefore, the Commission was not required
to demonstrate the foreclosure capability of exclusivity rebates on a caseby-case basis by applying the AEC test.
In fact, the Court even stated that
if the competitor was still able to
cover its costs in spite of the rebates
granted, it would not mean the
foreclosure effect did not exist. The
Court argued that the mechanism of
exclusivity rebates as such is capable of making market access more
difficult for the market-dominant
undertaking’s competitors, even if
that access is not economically impossible. Therefore, the Court concluded
that the Commission carried out the
AEC test only for the sake of completeness and in fact was not bound
to follow the Art. 82 Guidelines since
the Intel case was initiated before the
Art. 82 Guidelines were published.
When the same old way isn’t enough
creativity is required.
The end of the more economic approach?
The Court’s decision is in line with the
settled case law relating to exclusivity rebates. It can be assumed that,
given the circumstances of the case
and particularly in light of Intel’s
large market share and its systematic
approach at all levels of distribution,
the Court probably did not see any
compelling reason to deviate from
this case law. The same applies to the
AEC test. Since the Intel case represents the first time the Commission
applied the AEC test, the expectations
regarding the Court’s decision were
particularly high. However, the Court
made it clear that the AEC test cannot have any impact on the previous
EU case law concerning exclusivity
rebates. From the Court’s perspective,
the AEC test is apparently just one
of the many tools used to assess the
abusive character of a rebate system
and does not necessarily have to be
applied to exclusive rebate schemes
given their abusive nature. In this –>
Gibson, Dunn & Crutcher LLP
Hofgarten Palais, Marstallstrasse 11
Munich 80539, Tel. +49 89 189 330
[email protected]
36 – Public procurement & Cartel law – BLM – No. 2 – September 25, 2014
context, the extent to which the Commission’s specific approach with regard
to the application of the AEC test in the
case at hand had a deterrent effect on
the Court’s willingness to address the
relevance of the AEC test in more detail
remains subject to speculation. It must
be noted that the exact amount of the
rebates granted by Intel was not explicitly disclosed in the case documentation.
This omission forced the Commission
to work on the basis of assumptions. In
addition, the calculation of such relevant
costs as average avoidable costs was apparently subject to uncertainties as well.
Rebate schemes are a pricing
method that must be carefully
In any event, it seems to be clear that the
“more economic approach” reflected in
the AEC test will not be applicable with
regard to exclusivity rebates imposed by
a market-dominant undertaking. This,
however, begs the question of which legal
framework can be applied to rebates that
are not directly linked to a condition of
exclusive or quasi-exclusive supply from
a market-dominant undertaking but may
indeed have a fidelity-building effect. As
already mentioned above, this applies, in
particular, to rebate systems dependent on
the attainment of individual sales objectives. Based on the Court’s conclusions in
the Intel case, the Commission—at least
in theory—would have had to conduct
a full-fledged analysis considering all
circumstances and, in particular, whether
or not the specific sales objective of the
rebate scheme tended to remove or
restrict the buyer’s freedom to choose his
sources of supply. It can be assumed that
at least in cases in which the retroactive
rebate constitutes a mere conversion of
an exclusivity rebate—for example, when
the sales objective clearly constitutes the
entire demand requirements of the purchaser, the Commission would most likely
treat such a rebate as an exclusivity rebate.
However, the above does not mean that
the Commission will not apply the AEC
test in future investigations. In fact, with
regard to rebates within the third category that do not constitute a clear-cut case
demonstrating the fidelity-building effect, the Commission would have to conduct a full economic analysis based on its
Art. 82 Guidelines to determine whether
the rebate factually limits the customer’s
ability to buy goods from a competitor
of the market-dominant undertaking.
Hence, the “more economic approach” remains valid at least for this type of rebate.
Nevertheless, it remains—at least from
the current perspective—doubtful that
the AEC test will play a significant role in
the Commission’s future investigations
against market-dominant undertakings
that grant rebates to their customers. The
overall impression conveyed by the Intel
ruling is that the AEC test is too complicated from a purely practical perspective, even for the Commission itself.
Practical advice: caution needed
Rebate schemes imposed by marketdominant undertakings have been and
still are a pricing method that must be
carefully analyzed by the respective companies. This rule does not only apply to
exclusivity rebates that—as confirmed by
the Court in its Intel decision—constitute
an antitrust law infringement regardless
of whether or not they led to economic
harm. This is also the case with regard
to rebate schemes that are linked to the
attainment of individual sales objectives
and that, depending on the specific circumstances, may have a fidelity-building
effect. The latter has to be assessed on a
case-by-case basis. With the Intel decision in its pocket, however, the Commission might be more willing to initiate
investigations of rebate schemes offered
by market-dominant undertakings. This
could harm innovative companies that
employ rebates as a way of passing on
economic advantages to their customers.
The respective antitrust-law risks cannot
be entirely excluded. Nonetheless, marketdominant undertakings can mitigate
them by employing compliance systems
that monitor the internal price-building
mechanism. In addition, proper documentation of the costs or other advantages
passed on to the customer can serve as evidence that objectively justifies the allegedly abusive rebate scheme. All in all, the
“old wine” offered in the Intel judgment
still leaves enough room to maneuver
within the legal framework of EU antitrust
law to fulfill the economic expectations
of market-dominant undertakings. <–
Dr. Joachim Schütze,
Attorney-at-Law, Partner,
­Clifford Chance, Düsseldorf
[email protected]
Dr. Dimitri Slobodenjuk,
Senior Associate,
Clifford Chance, Düsseldorf
[email protected]
Louven (Ed.)
Ackermann • Rath (Eds.)
v. Dryander • Riehmer (Eds.)
Jonas • Viefhues (Eds.)
2012, 368 pages, € 98,–
ISBN 978-3-941389-15-1
2011, 402 pages, € 128,–
ISBN 978-3-941389-07-6
2012, about 450 pages, about
€ 128,–
ISBN 978-3-941389-11-3
2012, 344 pages, € 128,–
ISBN 978-3-941389-16-8
2012, 324 pages, € 128,–
ISBN 978-3-941389-09-0
Please order at your convenient bookshop
or go to
38 – Legal market – BLM – No. 2 – September 25, 2014
The Fast and the Furious
The road to success: Knowing when to speed up and help business change gears and when to slam on the
brakes and go for an analytical deep dive is what keeps the corporate legal function on track.
© Thinkstock/Getty Images
Dynamics of value-add counseling and the corporate legal function
By Dr. Klaus-Peter Weber
ithin a globalized framework
of increasingly demanding
advisory tasks, the roles
and responsibilities of corporate legal
departments have changed massively in
recent years. This evolution is expected
to continue. Hence, any state-of-the-art
legal function is not only subject to such
developments, but should actually be a
dynamic driver of them and shape the
elements that measure corporate success.
The new game – advisory roles redefined
While there is increasing consensus on
the ingredients of successful legal inhouse counseling in the global corporate
environment (these being professionally
first-class, focused yet holistic, businesssavvy, adequately scoped and timed to
name just a few), the challenges faced
by corporate legal functions and their
general counsel are manifold. The good
old days when quietly avoiding or at least
minimizing risk on a case-by-case basis
while patiently explaining the intricacies
of applicable legal concepts to internal
clients was good enough are long gone.
Today, active legal risk management has
become a permanent and truly quotidian
activity. However, it constitutes only one
of the most basic components of the legal advisory function’s work. Sharing the
overall responsibility for an enterprise, as
well as for the corporate and governance
structures which the group chooses –>
39 – Legal market – BLM – No. 2 – September 25, 2014
to give itself, can safely be described as
one of the most prominent elements of
any contemporary successful and impactful legal function. Based on redefining
the corporate advisory role in this way,
actively supporting executive responsibilities, being part of the overall value
creation chain, and providing regular
contributions to corporate success that
are easily discernible by the rest of the
organization, has become indispensable
for any effective legal department.
availability of internal and external
resources will more often than not be
directly linked to such contribution.
On your marks – positioning the legal
function in the corporate value chain
For an advisory function that shoulders
responsibility of deciding on potential showstoppers for almost every
corporate endeavor, it is all the more
important to be able to regularly and
cross-functionally contribute to the
overall business success and sustainable development of the organization.
To put it bluntly: Senior executives of
any business division, and even more so
corporate top management, need to be
able to perceive, understand and value
the contributions of the legal advisory
function at all times. It is only through
this deepened mutual understanding
of joint and holistic corporate responsibility that the general counsel becomes an integral part of any executive
board and earns his or her permanent
seat in top-level corporate-management and decision-making bodies.
The business of business is business.
This venerable adage could not be more
true for the contemporary legal function: The business of Legal is also (and
predominantly) business! While this
may sound like a matter of course, it
is often not. In today’s globalized and
fast-moving business environment,
all corporate functions are mercilessly submitted to the usual set of
corporate performance measurement
criteria ( just like any numbers-driven
business unit) and need to define
and continuously demonstrate their
contribution to the overall business
purpose: creating and safeguarding
value. The function’s position within
the corporate value chain and the
Legal departments have
­evolved into gatekeepers
and enablers of sustainable
­corporate development and
overall business success
The daily race – watch my d/time!
Managing constraints on legal resources
and mastering the omnipresent morefor-less dilemma are permanent activities
for any corporate legal function. From
a pure business perspective, value-add
legal counseling is easy to define: provide
­exactly what is needed, where it is needed,
when it is needed and at the best-avail­
able cost! While keeping an eye on cost
efficiencies and strictly monitoring outside
advisors’ fees are standard elements of
in-house legal management, the time
pressures on establishing sound advisory
relations and meaningful exchange with
business partners have increased significantly. This is due to a whole panoply
of reasons: soaring workloads within
business divisions, growing need for
global alignment on all types of business
processes, fast-paced readjustment of
business goals due to market variations
and overall shortened corporate decisionmaking life cycles, to name just a few.
Consequently, making the best use of
an internal client’s time has become
increasingly important for successful in-house counseling. On the formal
side, this involves accurately generating and processing all readily available
information in order to be professionally well prepared to provide legal or
strategic advice. Yet, on the personal
side, it requires timely establishment
of trusted advisory relationships: The
true ratio for a business goal, adequate
levels of advisory input, acceptable degrees of risk and overall entrepreneurial
direction can be quickly and efficiently
aligned only when well-functioning
individual relationships are at work.
From the perspective of an outside law
firm, understanding the elements of this
daily race can sometimes be a challenge.
However, such knowledge about an
organization and the interplay among
its players is essential to support valueadd counseling by the legal department
as well as to enabling optimal internal
communication and appropriate risk
management. Knowing when to speed
up and help business change gears and
when to slam on the brakes in the middle
of the road and go for an analytical deep
dive is key—for the corporate legal function as much as for any outside advisor!
Keeping up the pace – change
is a constant, not an issue
Any modern legal department is bound
to spend considerable amounts of time,
management energy and financial
resources on adjusting to the advisory
needs of their business partners. While –>
40 – Legal market – BLM – No. 2 – September 25, 2014
the corporate business environment is
constantly changing, the legal function
cannot afford to stay behind in splendid
isolation. Rather, it needs to keep and
often even set the pace, or risk losing
ground, impact, acumen and eventually its co-leading management role as
advisor for the organization at large.
Among the typical objectives of a modern corporate legal function, there are
normally only a few strictly legal targets:
A contemporary annual goal-setting
process first of all encompasses securing
strict alignment with and feeding significant advisory activities into the current
business goals of the organization. Furthermore, it includes the promulgation
of governance and necessary compliance
objectives. Finally, it permanently refines
those core legal functional goals—including providing regular trainings, enhancing contract management systems and
developing tools for efficient communication on important legal advisory
topics—in order to provide continuously
optimized services to internal clients
and to add value to the organization.
Staying on top of sprawling national and
international regulatory developments,
playing an instrumental role in paving
the way for internal clients’ success and
implementing best legal-risk-manage-
ment practices while at the same time
keeping a sharp eye on alignment with
overall group strategy as well as on compliance with regulatory and governance
requirements are no small objectives for
the legal function to achieve. The rewards,
however, can be tremendous and have
helped modern legal departments to
step out of their traditionally static roles
while securing legally sound business
decisions and becoming pivotal players
for shaping their corporate organizations.
in large international or global matrix
organizations, are operating and advising in a constantly and rapidly changing
multipolar business periphery. Thus, current advisory in-house roles need to cater
to a fast-paced, dynamic and sometimes
unforgiving corporate environment, while
at the same time preventing unwanted
exposure and providing constructive challenge to the intertwined framework of
management responsibilities, gover­nance
structures and corporate strategies.
The reality of these dynamics also
contains an important message to
the outside legal advisory community:
Change is a systemic constant in the
in-house legal context and needs to be
adequately reflected by outside legal
advice. Even the most proactive and
well-informed outside counsel cannot
overestimate the speed and impact with
which such constant readjustment is
taking place. In general, and in order to
help pave the way for lasting business
success, “embrace change” has become
the mindset required to master and,
not least, enjoy the legal advisory ride!
Legal departments can only efficiently
master these challenges if they clearly
define their position in the corporate
value-creation chain and visibly and
effectively add value. In this dynamic
environment, a very high degree of versatility and adaptability on the part of the
corporate legal function is indispensable.
As a consequence, legal departments
have evolved into gatekeepers and at
the same time enablers of sustainable
corporate development and overall business success. The rules of the race have
changed along that transformational
route and the challenges are manifold,
but so are the opportunities! <–
The road ahead – mastering
the challenges
Corporate legal functions and their general counsel, particularly those embedded
Dr. Klaus-Peter Weber,
LL.M., Attorney-at-Law (New York),
General Counsel,
Goodyear Dunlop D-A-CH, Hanau
[email protected]
41 – Advisory Board – BLM – No. 2 – September 25, 2014
Dr. Hildegard Bison
BP Europa SE, General Counsel Europe,
Dr. Klaus-Peter Weber
Goodyear Dunlop Tires GmbH,
General Counsel, Hanau
[email protected]
[email protected]
Dr. Florian Drinhausen
Deutsche Bank AG, Co-Deputy General
Counsel for Germany and Central and
Eastern Europe, Frankfurt am Main
Dr. Arnd Haller
Google Germany GmbH
Legal Director, Hamburg
[email protected]
[email protected]
Professor Dr. Stephan Wernicke
DIHK – Deutscher Industrie- und
Handels­kammertag e. V., Chief Counsel,
Director of Legal Affairs, Berlin
Dr. Severin Löffler
Microsoft Deutschland GmbH, Assistant
General Counsel, Legal and Corporate Affairs
Central & Eastern Europe, Unterschleißheim
[email protected]
[email protected]
Dr. Georg Rützel
GE Germany, General Counsel Europe,
Frankfurt am Main
Dr. Hanns Christoph Siebold
Morgan Stanley Bank AG, Managing Director,
Frankfurt am Main
[email protected]
[email protected]
42 – Strategic partners – BLM – No. 2 – September 25, 2014
Dr. Claudia Milbradt,
Königsallee 59, 40215 Düsseldorf
Telephone: +49 211 43 55 59 62
Dr. Michael J.R. Kremer,
Königsallee 59, 40215 Düsseldorf
Telephone: +49 211 4355 5369
[email protected]
[email protected]
Dr. Heike Wagner,
Equity Partner Corporate,
Barckhausstraße 12-16, 60325 Frankfurt am Main
Telephone: +49 69 71 701 322
Mobile: +49 171 34 08 033
[email protected]
Dr. Ole Jani,
Lennéstraße 7, 10785 Berlin
Telephone: +49 30 20360 1401
[email protected]
Dr. Jan Geert Meents,
Country Managing Partner,
Isartorplatz 1, 80331 Munich
Telephone: +49 89 23 23 72 130
Mobile: +49 175 56 56 511
[email protected]
Dr. Lutz Englisch,
Hofgarten Palais, Marstallstrasse 11, 80539 Munich
Telephone: +49 89 189 33 250
[email protected]
Dr. Regina Engelstädter,
Siesmayerstraße 21, 60323 Frankfurt am Main
Telephone: +49 69 90 74 85 110
Mobile: +49 170 57 58 866
[email protected]
Edouard Lange,
Siesmayerstraße 21, 60323 Frankfurt am Main
Telephone: +49 69 90 74 85 114
Dr. Dirk Stiller,
Friedrich-Ebert-Anlage 35-37, 60327 Frankfurt am Main
Telephone: +49 69 95 85 62 79
Mobile: +49 151 1427 6488
[email protected]
Dr. Friedrich Ludwig Hausmann,
Partner, Leiter Praxisgruppe Öffentliches Wirtschaftsrecht,
Lise-Meitner-Straße 1, 10589 Berlin
Telephone: +49 30 2636 3467
Mobile: +49 151 2919 2225
[email protected]
Markus Hauptmann,
Managing Partner Germany,
Bockenheimer Landstraße 20, 60323 Frankfurt am Main
Telephone: +49 69 29994 1231
Mobile: +49 172 6943 251
[email protected]
Dr. Robert Weber,
Bockenheimer Landstraße 20, 60323 Frankfurt am Main
Telephone: +49 69 29994 1370
Mobile: +49 170 7615 449
[email protected]
[email protected]
43 – Cooperation
Advisory Board
– –BLM
No. –1 No.
– June
2 –26,
2014 25, 2014
Dr. Hildegard
BisonChamber of Commerce, Inc.
BP EuropaGellert,
SE, General
at Law,
Bochum Legal Department & Business Development ­Consulting,
German American Chamber of Commerce, Inc.,
[email protected]
Broad Street, Floor 21, NY 10004, New York, USA
+1 (212) 974 8846
[email protected] /
German American Chamber of Commerce of the Midwest
Dr. Florian Drinhausen
Sandy Abraham, Manager Membership Development &
Deutsche Bank AG, Co-Deputy General
Engagement, USA
Counsel for Germany and Central and
Telephone: +1 (312) 665 0978
Eastern Europe, Frankfurt Main
Dr. Klaus-Peter
Industry and
Commerce Greater China
Tires GmbH,
Tower Counsel,
One, Lippo
Centre, 89 Queensway, Hong Kong
Telephone: +852 2526 5481
[email protected]
[email protected] /
Heads of Legal and Investment Departments
Dr. Arnd Haller
Google Germany GmbH
Legal Director, Hamburg
[email protected]
[email protected]
[email protected]
German Brazilian Chamber of Industry and Commerce
WernickeHead of Legal Department,
Dr. Claudia
– Deutscher
und São Paulo - SP, Brazil
Rua Verbo
Divino, Industrie1488, 04719-904
e. 5216
V., Chief Counsel,
+55 11 5187
Director of Legal Affairs, Berlin
[email protected]
[email protected]
Dr. Nils Seibert,
+86 10 6539 6621
Steffi Ye,
Dr. SeverinYuLöffler
Microsoft Shanghai
Deutschland GmbH, AssistantGuangzhou
General Counsel,
Legal and Corporate Affairs
21 5081
+86 20 8755 2353 232
Central & +86
[email protected]
[email protected]
[email protected]
Canadian German Chamber of Industry and Commerce Inc.
Yvonne Denz, Department Manager Membership and Projects,
Dr. Georg Rützel
480 University Ave, Suite 1500, Toronto, ON M5G 1V2, Canada
GE Germany, General Counsel Europe,
Telephone: +1 (416) 598 7088
Frankfurt Main
Dr. Hanns Christoph Siebold
Morgan Stanley Bank AG, Managing Director,
Frankfurt Main
[email protected]
[email protected]
[email protected]
German-Dutch Chamber of Commerce
Ulrike Tudyka, Head of Legal Department,
Nassauplein 30, NL – 2585 EC Den Haag, Netherlands
Telephone: +31 (0)70 3114 137
[email protected]
German Emirati Joint Council for Industry & Commerce
Anne-Friederike Paul, Head of Legal Department,
Business Village, Office 618, Port Saeed, Deira, P.O. Box 7480,
Dubai, UAE
Telephone: +971 (0)4 4470100 [email protected]
Kelly Pang,
+886 2 8758 5822
[email protected]
44 – Cooperation
Advisory Board
– No.
1 – June
26, –2014
No. 2 – September 25, 2014
Dr. Hildegard
Bisonof Commerce and Industry in Japan
BP Europa
SE, General
Editor in
Bochum KS Bldg., 5F, 2-4 Sanbancho, Chiyoda-ku
102-0075 Tokyo, Japan
[email protected]
+81 (0) 3 5276 8741
[email protected] /
Chamber of Industry and Commerce
Florian Drinhausen
Thomas Urbanczyk,
LL.M., Attorney
at Law,
Bank AG, Co-Deputy
of the
Legal and Tax Services
and Central
ul. Miodowa
14, Frankfurt
00-246 Warsaw,
Main Poland
Telephone: +48 22 5310 519
[email protected]
[email protected]
German-Saudi Arabian Liaison Office for Economic Affairs
Professor Dr. Stephan Wernicke
Christian Engels, LL.M., Legal Affairs / Public Relations,
DIHK – Deutscher Industrie- und
Futuro Towers, 4th Floor, Al Ma‘ather Street, P.O.Box: 61695
Handels­kammertag e. V., Chief Counsel,
Riyadh: 11575, Kingdom of Saudi Arabia
Director of Legal Affairs, Berlin
Telephone: +966 11 405 0201
[email protected]
[email protected]
Southern African – German Chamber of Commerce and Industry NPC
Rützel Legal Advisor and Project Manager
Social Responsibility, PO Box 87078,
Germany, Centre:
Counsel Europe,
2041, 47, Oxford Road, Forest Town, 2193
Johannesburg, South Africa
Telephone: +27 (0)11 486 2775
[email protected]
[email protected] /
Dr. Klaus-Peter Weber
Goodyear Dunlop Tires GmbH,
General Counsel, Hanau
[email protected]
Dr. Arnd Haller
Google Germany GmbH
Legal Director, Hamburg
[email protected]
Dr. Severin Löffler
Microsoft Deutschland GmbH, Assistant
General Counsel, Legal and Corporate Affairs
Central & Eastern Europe, Unterschleißheim
[email protected]
Dr. Hanns Christoph Siebold
Morgan Stanley Bank AG, Managing Director,
Frankfurt Main
[email protected]
Professor Dr. Thomas Wegerich
News staff:
Professor Dr. Thomas Wegerich (tw),
Christina Lynn Dier (cd)
Publishing company:
F.A.Z.-Institut für Management-, Markt- und
­Medieninformationen GmbH
Managing Director: Dr. André Hülsbömer
Frankenallee 68-72, 60327 Frankfurt Main,
Number in the commercial register: 53454,
Local Court Frankfurt Main
Telephone: +49 69 7591 2217
Fax: +49 69 7591 1966
German Law Publishers GmbH
Publisher: Professor Dr. Thomas Wegerich
Stalburgstraße 8, 60318 Frankfurt Main,
Telephone: +49 69 7591 2144
Fax: +49 69 7591 1966
E-mail: [email protected]
Annual subscription:
free of charge, frequency of publication: quarterly
Project management:
Christina Lynn Dier
Telephone: +49 69 7591 2195
Fax: +49 69 7591 802195
[email protected]
Marketing and advertising:
Karin Gangl
Telephone: +49 69 7591 2217
Fax: +49 69 7591 1966
[email protected]
Graphic-design concept and layout:
Rodolfo Fischer Lückert
Online design and realization:
Thomas Hecker
F.A.Z.-Institut für Management -, Markt- und
­Medieninformationen GmbH